Education Stabilization Fund of $31 billion to Help Educational Institutions and State Governments

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides budgetary relief, student aid support via the COVID-19 Pandemic Education Relief Act of 2020, and tax relief to institutions of higher education through a number of provisions. 

Budgetary Relief

The CARES Act creates an Education Stabilization Fund (the Fund) of almost $31 billion to help educational institutions and state governments manage challenges brought on by the pandemic. The fund will remain available through September 30, 2021, with proceeds available to support efforts by U.S. educators at all levels to prevent, prepare for and respond to the spread of coronavirus among students and faculty, both domestically and internationally

Grants to Institutions of Higher Education

While the Department of Education has yet to finalize the formula for distributing a $13.95 billion of grants to colleges and universities, it is expected that 90% of the funds will go directly to institutions via the Title IV distribution system. Early indications are that allocations from this fund will be weighted toward institutions with a higher number of low-income students, as the formula is expected to focus on the number of Pell Grant recipients at each school.. 

Recipients of grants from this fund must use them for direct emergency aid to students to defray the cost of expenses arising from the disruption of campus activities due to coronavirus. This includes, but is not limited to food, housing, course materials, technology, health care and childcare. 

Grant Aid Provided Directly to the States

A $2.95 billion grant aid to states will be allocated based on the population of individuals between the ages of 5 and 24 and the number of elementary and secondary school-age children who reside in the state. 

State governors will have discretion to award these funds to both public and private institutions in their state and are not required to award a set amount or percentage to either elementary and secondary schools or colleges and universities. State governors also have discretion to allocate these funds based on their determination of the extent to which a school was affected by coronavirus.

Student Aid Support

A section of the CARES Act known as the “COVID-19 Pandemic Education Relief Act of 2020” (Education Relief Act) provides relief for current college and university students as well as former students with outstanding federal student debt. It also provides funding to historically black colleges and universities (HBCUs) and research and arts agencies and institutions.

Campus-Based Aid

For award years 2019-2020 and 2020-2021, institutions that participate in campus-based programs such as the Federal Supplemental Educational Opportunity Grant (FSEOG), Federal Work Study (FWS) and Federal Perkins Loans (Perkins), are not required to provide a non-Federal share to match the Federal funds. This provision does not apply to private for-profit colleges or universities. 

• Institutions will be permitted to transfer up to 100% of unexpended FWS funds to their FSEOG program. However, any unexpended funds under the FSEOG program cannot be transferred to the FWS program.
• Institutions can reserve any amount of their allocation of FSEOG funds to award emergency financial aid grants that assist students with unexpected expenses or unmet needs arising as a result of COVID-19.
• Institutions participating in the FWS program may make payments to students who were unable to complete or fulfill work-study obligations due to the effects of COVID-19 (i.e. workplace closures, etc.), subject to a set of conditions (see whitepaper).

Student Aid Provisions

The Education Relief Act provisions also include changes to certain benefit calculations and obligations for students and institutions. Students are eligible for:

• An exclusion for any semester that the student does not complete due to COVID-19, from a student’s “period of enrollment” for purposes of determining eligibility to receive Federal Direct Stafford Loans.
• An exclusion of Pell Grants awarded during the emergency from the calculation of annual or cumulative limits if the recipient is unable to complete a term due to the COVID-19 emergency. 
• Relief from obligations to repay Direct Loans associated with a payment period if the student withdrew due to COVID-19.

An institution can:

• Waive the requirement that it return Title IV funds if the recipient of the assistance withdraws from the institution during the payment period or enrollment period as a result of COVID-19. The institution will still be required to report the number of such recipients, the amount of grant or loan assistance associated with each such recipient and the total amount of grant or loan assistance the institution has not returned under these provisions.
• Exclude from the quantitative component of the calculation of satisfactory academic progress any attempted credits that were not completed by a student as a result of COVID-19 without requiring an appeal by such student.

HBCUs can defer payment for the duration of COVID-19 on any loan received under Part D of title III of the HEA of 1965 (Part D – Historically Black College and University Capital Financing). 

Relief for Student Loan Borrowers

The Education Relief Act also provides relief to borrowers obligated to make payments on their federal Direct Loans and ED-held FFEL loans through September 2020. Additionally, interest will not accrue on loans during this period. Borrowers currently in federal loan forgiveness programs will still have this suspension period counted towards their payment requirements, even if payments are not made. These provisions do not impact Perkins Loans and private student loans. 

The Department of Education has stopped any involuntary collections of loan payments during this period. 

Tax Relief

The CARES Act includes a number of provisions with the goal of providing relief to employers and their employees. Click here for further information on these provisions and how they may impact institutions of higher education.

Action Plan for Higher Education Institutions

The absence of timely and clear guidance from regulatory agencies is already a major challenge. We strongly recommend that every institution immediately review the provisions of the CARES Act to evaluate opportunities that may be beneficial.

Assistance and Guidance from Freed Maxick

The Freed Maxick Covid-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of Covid-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

Understand available revenue enhancements and funding to recoup expenses and lost revenue related to COVID-19

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides healthcare organizations with access to relief funds to assist with the financial burden associated with the diagnosis, testing, and caring for individuals with COVID-19. Included in these funds is access to $100 billion for the Public Health and Social Services Emergency Fund which will provide reimbursement to providers for COVID-19 related expenses and lost revenues due to the outbreak. These funds will be made available through grants or other mechanisms necessitating the accurate tracking and reporting of related expenses and lost revenues. Timeliness for submitting for these funds will be key for healthcare providers to secure dollars.

Additional relief will be provided in the form of reimbursement enhancements/cash accelerations, loan options, and tax savings to assist in offsetting the impact of the COVID-19 pandemic.

The absence of timely and clear guidance from HHS, CMS, SBA, and other agencies is already a major challenge. We strongly recommend that every provider immediately review the provisions of the CARES Act to evaluate opportunities that may be beneficial.

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

Over $100 billion of aid is targeted towards the healthcare system and includes something for nearly all types of providers

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (or “the Act”) takes major steps toward supporting the nation’s health care system as it responds to this unprecedented health and financial crisis. The Act includes provisions to:

• Expand access to diagnostic testing and telehealth;
• Bolster the stockpile of personal protective equipment and other needed supplies;
• Mitigate drug and device shortages; and
• Provide financial support and flexibilities for providers to respond to the outbreak.
• Reimburse hospitals and other providers for expenditures and lost revenues related to COVID-19, among billions of dollars in other supplemental funding for HHS agencies.

Health Care Workforce and Provider Relief

The Act includes provisions meant to support and enhance the health industry workforce like a reauthorization of several workforce programs designed to support clinician training and education, including training for practitioners in family medicine, general internal medicine, pediatrics and other specialties. These programs are administered by the Health Resources and Services Administration (HRSA).

Improved Access and Provider Flexibility - Telehealth Expansion

The Act contains various Medicare provisions that aim to expand the use of telehealth services during the public health emergency, including the redaction of prior regulations which requires providers to have treated a patient within the last three years in order to furnish telehealth services to that person during the emergency period.

Federally qualified health centers (FQHCs) and rural health clinics (RHCs) will be permitted to serve as distant sites and provide telehealth services to patients during the public health emergency at reimbursement rates “similar” to the national average rates for comparable telehealth services under the Medicare physician fee schedule, with some exceptions.

Improved Access and Provider Flexibility - Sequestration

The Act temporarily suspends sequestration-mandated reductions to Medicare claims from May 1, 2020, through December 31, 2020, which will have the effect of increasing Medicare payments to providers. In addition, the legislation creates a new 20 percent add-on to the Hospital Inpatient Prospective Payment System (IPPS) rate for patients with COVID-19 under the Medicare hospital inpatient prospective payment system.

Improved Access and Provider Flexibility - Post-Acute Care Access, DME and Clinical Labs

The Act aims to increase access to post-acute care during the emergency period through additional flexibilities for post-acute care providers including waivers on requirements regarding hours of therapy and modifications to selected IPPS rates. The Act also allows or provides for:

• Nurse practitioners and physician assistants to order home health services during the six months following enactment.
• Permitting state Medicaid programs to pay for direct support professionals.
• Different blended payment rates to increase Medicare reimbursement for durable medical equipment (DME) suppliers
• Delays in scheduled payment reductions to clinical laboratories and postpones the upcoming reporting period during which clinical labs are required to report private payer information.

Improved Access and Provider Flexibility - Community Health Centers

The Act sets aside an additional $1.32 billion for supplemental awards for the treatment, detection and diagnosis of COVID-19 in community health centers. It also reauthorizes HRSA’s Rural Health Care Services Outreach, Rural Health Network Development and Small Health Care Provider Quality Improvement grant programs, as well as the Telehealth Network and Telehealth Resource Center grant programs.

HIPAA

The Act directs HHS to issue guidance on restrictions on protected health information, which the agency has already taken steps towards loosening.

Coverage and Access to Care

According to the Act, should a health plan or issuer have a negotiated rate with respect to COVID-19 testing, the rates in the contract must be adhered to. However, if there is no existing contract, the plan or insurance issuer is required to reimburse the provider in the amount specified (“cash price”) as listed by the provider online or the plan or issuer may negotiate a lower price with the provider.

Social Support Programs

The Act includes language to address problems that have arisen with respect to social programs put in place to support the elderly. This includes provisions allowing individuals who are practicing social distancing in order to avoid infection by the coronavirus to receive home-delivered nutrition services It also reauthorizes the Healthy Start Program to provide resources for the improvement of birth outcomes for infants and their mothers.  

Health Extenders

The Act provides funding through November 30, 2020, for community health centers, the National Health Service Corps, the Teaching Health Center Graduate Medical Education (THCGME) program, the Special Diabetes Program and the Special Diabetes Program for Indians.

The Act also delays scheduled Medicaid disproportionate share hospital (DSH) payment reductions until December 1, 2020 and provides funding through November 30 for Medicare quality measure endorsement, input and selection, and for outreach and assistance for Medicare low-income programs.

HHS Supplemental Appropriations

The Act provides $127 billion for medical response efforts including $100 billion for the Public Health and Social Services Emergency Fund to reimburse, through grants or other mechanisms, providers for coronavirus-related expenses or lost revenues attributable to the outbreak.

Eligible providers include public entities, Medicare or Medicaid enrolled providers and suppliers, and other for-profit and not-for-profit entities that provide diagnoses, testing or care for individuals with COVID-19. Other supplemental appropriations:

• Funding for building or construction of temporary structures, leasing of properties, medical supplies and equipment, increased workforce and training costs, emergency operation centers, repurposing facilities and surge capacity.
• $3.5 billion for the development and purchasing of vaccines and therapeutics for COVID-19
• $16 billion for the Strategic National Stockpile to procure personal protective equipment and other supplies.
• $4.3 billion in funding for the CDC, including $1.5 billion for grants or cooperative agreements with states, localities, territories and tribes to carry out public health activities
• $945 million for the National Institutes of Health (NIH) for research activities related to COVID-19
• $955 million for the Administration for Community Living to support nutrition programs, home and community-based services, family caregivers and other programs for seniors and individuals with disabilities.
• $1.03 billion for the Indian Health Service to respond to the outbreak.

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel. 

COVID-19 is presenting challenges for many companies. To address these challenges, many regulators/agencies have issued orders, releases and statements which allow, subject to certain conditions, companies to take advantage of any applicable relief. Companies need to ensure they meet all applicable criteria and are in compliance with the requirements outlined below, as in many cases, extensions are not automatic.

The following is a list of regulatory reliefs as of March 29, 2020. Please check back regularly, as regulators are making announcements frequently.

SEC

• Conditional Regulatory Relief for Registered Transfer Agents and Certain Other Persons Affected by the Coronavirus Disease 2019 (COVID-19) – extensions through May 30, 2020. Additional Details
• CorpFin has also issued guidance (see link below) providing the staff’s current view regarding disclosure obligations that registrant’s should consider. The guidance encourages timely reporting while recognizing that it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies. Additional Details
• Conditional regulatory relief has been added for Regulation A and Regulation Crowdfunding issuers. The rules provide, subject to certain conditions, affected companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 26, 2020 and May 31, 2020. Additional Details
• Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (COVID-19) provides publicly traded companies with an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and July 1, 2020. Utilizing the relief requires a registrant to file an 8-K or 6-K with specified information required. Additional Details

FDIC

• The Federal financial institution regulatory agencies and the state banking regulators issued an interagency statement encouraging financial institutions to work constructively with borrowers affected by COVID-19 and providing additional information regarding loan modifications. The agencies encourage financial institutions to work with borrowers, will not criticize institutions for doing so in a safe and sound manner, and will not direct supervised institutions to automatically categorize loan modifications as troubled debt restructurings (TDRs). Additional Details

SINGLE AUDIT REPORTING

• Delay the completion and submission of the Single Audit reporting package, as required under Subpart F of 2 CFR § 200.501Audit Requirements, to six (6) months beyond the normal due date. No further action by awarding agencies is required to enact this extension. Additional Details

HUD

• HUD announced a blanket 30-day extension for the filing of all REAC financial statements. That extension is automatic and does not require any action by the project. However, REAC has clarified that the extension DOES NOT EXTEND THE 60-day RESIDUAL RECEIPTS deposit requirement. Additional Details

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

New York has extended the April 15 due date to July 15, 2020, for personal income tax and corporation tax returns originally due April 15, 2020, due to the coronavirus pandemic. The extension applies to returns for individuals, fiduciaries, and corporations. In addition, taxpayers are allowed to defer all related tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed.

Taxpayers do not need to file any additional forms or call to apply for this relief, this is an automatic filing and payment deadline extension and relief from penalties and interest.

Tax year 2019 returns due on April 15, 2020, and related payments of tax or installments of tax, including installments of estimated taxes for the 2020 tax year, will not be subject to any failure to file, failure to pay, late payment, or underpayment penalties, or interest if filed and paid by July 15, 2020.

Taxpayers unable to file their 2019 return by July 15, 2020, can request an automatic extension. The return will be due on October 15, 2020 (or September 30, 2020, for calendar-year fiduciary returns), however estimated payments and any 2019 tax liability will be due with the extension request.

This extension only applies income tax, no extension is provided in the notice for the payment or deposit of any other type of state tax, or for the filing of any state information return. In addition, remittance of income tax withheld by employers required to be made using Form NYS-1, Return of Tax Withheld, must be made on time.

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

The 2019 income tax filing and payment deadlines for all taxpayers who file and pay their Federal income taxes on April 15, 2020, are automatically extended until July 15, 2020. This relief applies to all individual returns, trusts, and corporations. This relief is automatic, taxpayers do not need to file any additional forms or call the IRS to qualify. This relief also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.

Penalties and interest will begin to accrue on any remaining unpaid balances as of July 16, 2020. You will automatically avoid interest and penalties on the taxes paid by July 15.

Individual taxpayers who need additional time to file beyond the July 15 deadline can request a filing extension by filing Form 4868, businesses who need additional time must file Form 7004.

Please note that relief provided in the notice is only for the payment or deposit of income tax. Extension for filing and payment or deposit is not provided for any other type of Federal tax or filing of any federal information return.

State returns and payments are not covered by this relief. Taxpayers should coordinate with their tax advisors to address any state and local tax payment and filing requirements.

Overview

The Families FIrst Coronavirus Response Act's main focus is on two types of mandatory paid leave for employees and on tax credits to help employers pay for the mandatory paid leave.

There are different paid leave types and amounts based on the reasons that the employees are unable to work due to the COVID-19 emergency. Employers will need to make determinations of the amount and duration of mandatory paid sick leave based on an individual employee’s facts.

To help fund mandatory paid leave, employers will receive payroll tax credits against FICA based on the amounts of mandatory sick leave paid and based on certain qualified health plan expenses the employer incurs related to employees taking the mandatory paid leave.

Self-employed individuals who are unable to work because of the COVID-19 emergency will also receive credits against section 1402 Self Employment Contributions Act (SECA) contributions. If a self-employed individual is also an employee of another employer, the individual cannot receive both.

Definitions and requirements

• Employer
  • The mandatory paid leave rules generally apply to employers with fewer than 500 employees.
• Eligible employee
  • An employee who has worked for the employer for at least 30 days.
  • Employers can exclude health providers or emergency responders from the benefits above.
• Employers must give employees notice that these types of leave are available.
• Employees must be allowed to use the appropriate types of leave described above before taking any regular paid time off otherwise available to the employee.
• These paid leave rights expire at the end of 2020.

Mandatory paid leave types 

Public health emergency leave/Family leave

Under amendments to the Family and Medical Leave Act (FMLA), if an employee takes time off (and is unable to work or telework) to care for a son or daughter under age 18 because the school or place of care has been closed due to the COVID-19 public health emergency, the employer must allow the employee to take time off.

This time off is unpaid job-protected leave for the first two weeks. During this two-week period, the employee can take other types of paid time off available from their employer or under the emergency paid sick leave, if eligible.

However, after the first 10 workdays, the employer must provide mandatory paid leave for each day of leave. The paid leave amount is:

• At minimum 2/3 of the employee’s regular rate of pay based on the employee’s normal work schedule.
• The amount is capped at $200 per day and is capped at a total of $10,000 for each employee (10 weeks in total).
• The employee’s job must remain protected while the employee is on leave unless a special exception applies.

Emergency paid sick leave

Employers must provide up to 80 hours of emergency paid sick leave to each full-time employee who cannot work (or telework) based on any of the six criteria below. Part-time employees get paid sick leave based on their hours during a normal two-week schedule.

The amount the employer must pay depends on the criteria in use:

1. Employee is subject to federal, state or local quarantine restrictions.
2. The employee has been advised by a health care provider to self-quarantine due to COVID-19 concerns.
3. The employee has COVID-19 symptoms and is seeking a medical diagnosis.
4. The employee is caring for someone under quarantine or self-quarantine as described above.
5. The employee is caring for a son or daughter if the school or day care provider has been closed due to COVID-19 precautions.
6. Other similar conditions if posted by the Department of Health and Human Services (HHS).

For circumstances 1 to 3 above, the amount of paid sick leave is:

• 100% of regular compensation up to a maximum amount of $511 per day.

For criteria 4 to 6 above, the amount of paid sick leave is:

• 2/3 of regular pay with a maximum amount of $200 per day.

Employers subject to multiemployer collective bargaining agreements may have to fulfill the requirements above by paying into multiemployer paid leave plans under the collective bargaining agreement.

Small Business Exemption

Small businesses with fewer than 50 employees will be eligible for an exemption from the leave requirements relating to school closings or child care unavailability where the requirements would jeopardize the ability of the business to continue.

The exemption will be available based on simple and clear criteria that make it available in circumstances involving jeopardy to the viability of an employer’s business as a going concern. The Department of Labor will provide emergency guidance and rulemaking to clearly articulate this standard.

Employer tax credits

The Act includes four new tax credits to help alleviate the cost to employers of the paid leave requirements described above. These tax credits are set forth in sections 7001 through 7004 of the Act.

Payroll credit for required paid sick leave

Employers can take tax credits for qualified sick leave wages actually paid in a quarter up to $200 per employee per day (or $511 per employee per day for the quarantine reasons listed above). The aggregate number of days of sick leave considered is limited to the aggregate number of days taken into account for all preceding quarters minus 10 days.

The credit cannot be greater than the payroll taxes for that quarter (reduced by certain other FICA credits) and applies only to wages paid for the period beginning on a date selected by Treasury during the 15-day period beginning on the date of enactment (March 18, 2020) and ending on Dec. 31, 2020.

An employer can increase the tax credit for certain qualified health plan expenses incurred by the employer to provide employee group health plan coverage while employees are on this paid leave. This only applies to employer group health plan coverage that is exempt from employee income under section 106 (regular exemption for employer-provided health care plans). This amount needs to be pro-rated based on the number of covered employees and is with regard to periods of coverage while the emergency paid sick leave is being used. Presumably, this is in place because the employer cannot take the employee’s usual pre-tax salary reductions typically used to pay for health insurance from emergency paid sick leave wages.

To avoid a double benefit, the employer’s gross income must be increased by the amount of the tax credit.

Credit for sick leave for certain self-employed individuals

A credit similar to the payroll credit for required paid sick leave described above is available for self-employed individuals. The credit is taken against section 1402 self-employment tax and the credit computation is substantially similar with some notable differences.

Payroll credit for required paid family leave

Like the required paid sick leave credit, an employer can take a tax credit against payroll amounts for each calendar quarter for required family leave payments. The credit is limited to $200 per day per employee covered with an aggregate credit limit of $10,000 per employee.

The employer can take a credit for the qualified group health plan expenses with regard to the employees taking paid family leave. 

Credit for family leave for certain self-employed individuals

A credit similar to the payroll credit for required paid family leave described above is available for self-employed individuals. The credit computation is substantially similar with some notable differences.

Special rules related to tax on employers

Wages required to be paid because of emergency paid family leave are not considered wages for FICA purposes (however, the paid leave amounts are considered wages for Medicare purposes). The payroll credits (but not the self-employment credits) are increased by the amount of Medicare tax imposed on the employer.

Prompt Payment for the Cost of Providing Leave

The IRS issued IR-2020-57 which contains guidance on how to fund the new paid leave.

When employers pay their employees, they are required to withhold from their employees’ paychecks federal income taxes and the employees' share of Social Security and Medicare taxes. The employers then are required to deposit these federal taxes, along with their share of Social Security and Medicare taxes, with the IRS and file quarterly payroll tax returns (Form 941 series) with the IRS.

Under guidance that will be released this week, eligible employers who pay qualifying sick or child-care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child-care leave that they paid, rather than deposit them with the IRS.

The payroll taxes that are available for retention 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. The IRS expects to process these requests in two weeks or less. The details of this new, expedited procedure will be announced this week.

Takeaways

While necessary and very helpful to employees, the required paid leave provisions will be costly to employers and require additional resources to administer. The Act provides several tax credits to mitigate these additional employer costs; however, these tax credits are quite complex and bring forth many questions from employers that will need to be addressed. The biggest question now is when are these tax credits effective? The Act states that it applies to wages paid beginning on a date selected by Treasury, which could be any time in the next 15 days.

Non-Enforcement Period

Department of Labor will be issuing a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the act. Under this policy, Department of Labor will not bring an enforcement action against any employer for violations of the act so long as the employer has acted reasonably and in good faith to comply with the act. The Department of Labor will instead focus on compliance assistance during the 30-day period.

In an effort to minimize economic impacts on small businesses resulting from the COVID-19 (coronavirus) pandemic, the Small Business Administration (SBA) is providing Economic Injury Disaster Loans (EIDLs) to small businesses in designated states and territories.

Offered directly by the SBA (and not administered through lending institutions), the low-interest, federal disaster working capital loans are intended to help eligible businesses continue operations until the effects of the declared disaster have passed. Loans of up to $2 million may be used to pay fixed debts, payroll, accounts payable and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or for expansion.

Eligibility will vary by state, so businesses should check applicable guidelines. The following information provides the federal guidelines.

ELIGIBILITY

EIDLs are limited to working capital for small businesses and private nonprofit organizations. They are available to small businesses directly affected by the COVID-19, or that offer services directly related to these businesses.

Applicants must have good credit history, the ability to repay and be physically located in disaster areas (economic nexus does not suffice). Note, EIDL loans are only available to businesses without access to credit elsewhere, such as existing lines of credit.

Eligible industries include, but are not limited to, hotels, recreational facilities, manufacturers, sports vendors, owners of rental property, restaurants, retailers, travel agencies and wholesalers. Conversely, casinos and other gambling businesses, agriculture enterprises, religious and charitable organizations are ineligible.

LOAN PARAMETERS

Disaster relief loans are capped at $2 million with an interest rate of 3.75% (2.75% for nonprofits, except charitable organizations that are ineligible). Loans over $25,000 may require collateral, and loan terms are up to 30 years. Payments are deferred for four months. Should a business owner be denied, they have the opportunity to reapply within (6) months. Applicants may also request an increase to the amounts originally awarded.

HOW TO APPLY

When a declaration is made for designated areas within a state, the information about the application process for EIDL assistance is being made available to all affected communities as well as updated on SBA.gov/disaster.

SBA EIDL loans can provide vital economic support for small businesses during this difficult time of revenue loss. Freed Maxick will assist in preparing and filing your SBA loan applications. While online applications are preferred by the SBA, mailed applications can be submitted.

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program (PPP) provides $349 billion of loan funds to support small businesses and other eligible entities impacted by COVID-19 to pay workers, interest on mortgage obligations, rent, health insurance, paid sick or medical leave, utilities, and payroll related costs incurred from February 15, 2020 – June 30, 2020,(“ the covered period”.)

• Eligible applicants can apply for a PPP loan, up to a maximum of $10 million, from participating lenders. Loan amounts are based generally on a monthly average of payroll.
• Up to eight weeks of eligible expenses paid after the PPP closing can be forgiven from the loan principal as long as the employer maintains previous payroll counts (FTE levels) during the covered period.
• PPP loan repayments will be deferred for not less than six months and not more than twelve months.
• Interest rates associated with PPP loans will be at a maximum 4% per annum.
• There will be no fees for borrowers to apply.
• There are no collateral requirements or personal guarantees for the loan.
• SBA credit elsewhere test does not apply to this loan.
• All PPP loans are federally guaranteed by the SBA 100%.
• Additional details of PPP will be provided as the SBA regulations are finalized, which the CARES Act requires to occur within 15 days of March 27, 2020.

What are eligible expenses under PPP?

• Eligible expenses include payroll support, such as employee salaries, paid sick or medical leave, health insurance premiums, mortgage interest, rent, and utility payments.

Who is eligible and can apply for PPP?

• Any business concern; or
• 501(c)(3) nonprofit organizations; or
• 501(c)(19) veteran’s organizations; or
• Tribal business concern described in section 31(b)(2)(C) of the Small Business Act;
• with the greater of:
  • 500 employees or less; or
  • The SBA size standards shown by NAICS code for each type of business: https://www.sba.gov/size-standards; or
• Sole-proprietors, independent contractors, and other self-employed individuals; or
• Businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries to be eligible and is below a gross annual receipts threshold in certain industries; or
• Businesses in the hospitality and restaurant industries, franchises that are approved on the SBA’s Franchise Directory; or
• Small business that receives financing through the Small Business Investment Company (SBIC) program.

Do I have to be operational to apply?

• Yes, entities must have been operational on February 15, 2020 and had payroll during 2019 or January 1 to February 29, 2020 (if not in business in 2019).

Where can I apply for PPP loan?

• You can apply through authorized bank and non-bank lenders approved by the Small Business Administration and U.S. Department of the Treasury for the PPP program.
• Lenders are waiting for guidance from the SBA on when to start accepting applications.
• We will provide more information as lenders are identified.

Who approves my PPP loan?

• The lender who is approved by SBA or U.S. Treasury for PPP will approve your loan application.

What is the time period covered under the PPP?

• The covered loan period is from February 15, 2020 to June 30, 2020.

What is the maximum loan amount under the PPP?

• The maximum loan amount is $10 million.
• There is a formula to determine the loan amount that is related to payroll costs incurred by the business.

How much is the loan guarantee provided by SBA to lenders under the Program?

• 100% loan guarantee.

Can I still apply for PPP if I can obtain credit elsewhere?

• Credit elsewhere requirements are waived for this PPP.

What certifications will I need to provide in order to apply for PPP?

• Borrower must certify in good faith that funds are needed based on current economic conditions, that the funds will be used to retain workers and maintain payroll, and that their request is not duplicative with other SBA funds for the same purpose.

What fees will I need to pay in order for PPP?

• SBA waives borrower and lender fees.

Is there a collateral or personal guarantee requirement for PPP?

• Both collateral and personal guarantees are waived.

What is the interest on PPP loans?

• Maximum interest that can be charged- is 4%.
• The Lender will determine the interest rate.

Is there a prepayment penalty or fee on PPP?

• There are no prepayment fees or penalty.

Are there deferred payments allowed under PPP?

• Loan payments will be deferred for minimum of 6 months.
• A lender can elect to defer for additional 6 months.

Is any portion of the PPP loan forgivable?

• Amount spent by borrower in the first 8 weeks from loan origination will be forgiven with appropriate documentation provided to the lender.
• Amount will be reduced proportionately by the reductions in workforce as compared to the previous year’s comparable covered period or, at the election of the borrower, the first two months of 2020
• If rehires are made during the 8-week period, then there will be no penalty in reflection of layoffs incurred from February 15, 2020 and April 26, 2020 (30 days after enactment).

What happens to my PPP loan after December 31, 2020?

• Anything not forgiven or repaid by December 31, 2020 will convert to a maximum 10-year loan at a maximum of 4% interest rate per annum.
• The loan will remain 100% guaranteed by SBA.

Loan Forgiveness for Paycheck Protection Program (PPP)

The Act establishes that the PPP borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the PPP loan.

What can be included in the PPP loan forgiveness amount?

• Payroll costs;
• Mortgage interest payments on mortgage obligations incurred prior to February 15, 2020;
• Payment of rent on covered leases entered into prior to February 15, 2020; and
• Payment on any utility for which service began before February 15, 2020.

What is the maximum amount of PPP loan can be forgiven?

• Amounts forgiven may not exceed the principal amount of the loan.
• Eligible payroll costs do not include compensation above $100,000 in wages.
• The amount forgiven will be reduced by any employees reduction in pay beyond 25 percent of their prior year compensation.

What proof do I need to submit to my lender to qualify to PPP loan forgiveness?

• Borrowers will provide documentation to lenders of their payments during the period such as payroll tax filings, proof of lease payments, proof of mortgage interest payments, and proof of utility payments.
• Proof of payment can be a bank statement or canceled checks.

When will my PPP loan be approved for forgiveness?

• The borrower must make a request to the lender for forgiveness by providing documentation of payments made under the covered period.
• The lender has 60 days to review and approve the request for forgiveness.

What happens to the portion of my PPP loan that is not forgiven?

• Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at maximum 4% interest per annum.
• 100% loan guarantee remains intact from the SBA.

Example

A qualified small business pays $2,000,000 in eligible expenses that qualify for forgiveness (such as payroll expenses, rent payments, and utility costs) and receives a covered loan in the amount of $2,000,000.

For the period between February 15, 2019 - June 30, 2019, the Eligible Recipient employed an average of 200 full-time employees. Thereafter, for the same 2020 covered period, the Eligible Recipient employs on average 190 full-time employees, and there was no reduction in salary or wages for any full-time employee that made less than $100,000 on an annualized basis in 2019. In that case, the total amount of the covered loan eligible to be forgiven is equal to $1,900,000, calculated as follows:

• $2,000,000, multiplied by
• .95 (190 full-time employees/200 full-time employees).

Organizations seeking forgiveness of a covered loan are required to submit:

• documentation verifying the number of full-time equivalent employees on payroll and pay rates for the required periods; and
• documentation substantiating expenses made that are eligible for forgiveness (such as lease, mortgage interest, and utility payments).

We anticipate additional guidance will be issued by the SBA to assist businesses and organizations seeking loans through the new program implemented by the CARES Act.

Assistance and Guidance from Freed Maxick

The Freed Maxick COVID-19 Resource Center has a wealth of information and guidance on a wide range of topics related to tax relief and benefits, regulatory relief and benefits, and business continuity in the era of COVID-19. Click on the button to explore insights, observations and updates.

If you wish additional guidance, we are available to discuss your issues and concerns. Connect with us here or call Freed Maxick at 716.847.2651.

Please keep in mind that due to the quickly-changing nature of the COVID-19 pandemic, you should always discuss changes with your Freed Maxick advisor or legal counsel.

On March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (CARES Act) into law. The CARES Act is a massive $2 trillion bill with an array of significant tax-saving provisions that impact both individuals and businesses and hopefully create needed cash flow. The CARES Act also could affect prior tax years.

INDIVIDUAL PROVISIONS

CASH PAYMENTS

The CARES Act provides for payments to individuals of up to $1,200 per person ($2,400 for a married couple) with an additional $500 for each qualifying child. The payment is subject to a phase-out for individuals with adjusted gross income over $75,000 and married persons filing jointly with AGI above $150,000. The amount of the payment is reduced by $5 for each $100 in income above the applicable threshold.

Nonresident alien individuals, individuals who are dependents of another, and estates or trusts are ineligible for the payment.

Payments will generally be based on 2018 tax return information. However, like the advanced tax premium credit under the Affordable Care Act, there is a true-up for the amount for which one is eligible on the filing of the 2020 tax return.

RETIREMENT FUND RULES

In order to generate access to cash for individuals, the bill liberalizes the retirement plan rules, for 2020, dealing with premature distribution penalties, plan loans and required minimum distributions (RMDs).

The 10% premature early withdrawal penalty is waived for distributions of up to $100,000 from qualified retirement accounts and individual retirement accounts for coronavirus-related purposes. Additionally, the federal income tax on such distributions can be paid over a three-year period. The law also provides that these distributions can be recontributed back to the plan within a three- year period without affecting that year’s contribution cap.

The bill provides more flexible rules concerning loans from certain retirement accounts for coronavirus-related relief. The maximum amount of loans (when combined with existing loans) which can be taken from the plan is the lesser of $100,000 (up from $50,000) or 100% of the participant’s accrued benefit (up from 50%). In addition, there is a delay in the starting date of loan repayments back to the plan.

The bill also temporarily waives the required minimum distribution requirement from the plan for 2020. This permits those who do not need immediate funds to avoid cashing out investments at a low value.

A coronavirus-related distribution is one made to an individual where 1) he/she, a spouse or a dependent is diagnosed with COVID-19; or 2) the individual suffers adverse financial consequence due to being quarantined, furloughed, laid off, having work hours reduced, closing or reducing a business owned or operated by that person due to COVID-19, or other factors to be determined by Treasury. The qualified plan can accept an employee certification that this condition is satisfied. A single $100,000 limit applies to distributions by plans of a controlled group of businesses.

CHARITABLE CONTRIBUTIONS

Up to $300 of cash contributions for 2020 will be allowed for contributions to charities, whether the taxpayer itemizes or not, in determining adjusted gross income.

Additionally, an individual can elect to have the 50% of AGI limit not apply in 2020 for certain qualified contributions. However this does not apply to contributions to certain non-operating private foundations or amounts to establish or maintain a donor advised fund.

The limitation for C corporations, normally subject to a 10% of taxable income limit, is raised to 25% of taxable income.

The limitation on deductions for contributions of food inventory is increased from 15% to 25%.

EMPLOYER PAYMENT OF STUDENT LOANS EDUCATION ASSISTANCE PROGRAM

IRC Sec 127(c) of the Code is amended to include as a nontaxable employer-provided educational assistance program any payment of principal or interest made before January 1, 2021 (whether paid to the employee or a lender).

BUSINESS PROVISIONS

EMPLOYEE RETENTION CREDIT FOR EMPLOYER SUBJECT TO CLOSURE DUE TO COVID-19

An eligible employer is allowed a credit against applicable employment taxes for each calendar quarter equal to 50% of qualified wages for each employee for such calendar quarter.

• The amount of qualified wages for any employee taken into account by an employer for all calendar quarters is limited to $10,000.
• The credit is limited to the employment taxes owed as reduced by other credits (including the Sick Leave and Family and Medical Leave credits under the Families First Coronavirus Response Act) for all employees of the eligible employer for such calendar quarter. If the employee retention credit exceeds this amount, the difference is an overpayment which can be refunded.

An eligible employer is one who (a) was carrying on a trade or business during calendar year 2020; (b) with respect to any calendar quarter for which (i) operations are fully or partially suspended due to orders from an appropriate government authority limiting commerce, travel, or group meeting due to COVID-19 or (ii) in which (beginning in first calendar quarter after 12/31/2019) there has been a significant decline in gross receipts (i.e., less than 50% gross receipts for same quarter in prior year and ending with calendar quarter for which gross receipts are greater than 80% same calendar quarter in prior year. Tax exempt organizations can also benefit from this credit.

EMPLOYER AND SELF-EMPLOYER INDIVIDUAL DEFERRAL OF PAYROLL TAXES

Employers and self-employed individuals can defer the payment of the employer portion of employment taxes or self-employment taxes due during the “payroll tax deferral period” to December 31, 2021, and December 31, 2022. 50% of the deferred taxes will be required to be paid on these dates. Penalties will not apply for failure to make timely deposits for withholding these amounts.

The Payroll Tax Deferral Period is defined as the period beginning on date of enactment to January 1, 2021. This does not appear to be retroactive to January 1, 2020.

NET OPERATING LOSS (NOL) RULES ARE RELAXED

Many of the rules limiting the use of net operating losses under the Tax Cuts and Jobs Act (TCJA) are suspended under the Stimulus Bill.

• NOLs from 2018, 2019 or 2020 are eligible to be carried back for five years.
• Additionally, the 80% limit on use of NOL carryforwards is also temporarily removed so that the NOL can fully offset income.

Those impacted by this rule should seek to carry back available losses to obtain refunds.

LIMITATION OF INDIVIDUALS’ USE OF BUSINESS LOSSES

Under the TCJA, non-corporate taxpayers’ net business losses were limited under IRC section 461(l) to $250,000 ($500,000 for a joint filer). The Stimulus Bill would permit use of net business losses without limit for the 2018 tax year through 2020. If you were limited in the use of carryover used in 2018, this can produce a refund opportunity.

CORPORATE ALTERNATE MINIMUM TAX CREDIT REFUND

Under the TCJA, a C corporation with alternative minimum tax credits was entitled to a refund of these credits over a four-year period — 2018, 2019, 2020 and 2021. Under the Stimulus Bill, the corporation can receive the refund over a two-year period 2018 and 2019. Furthermore, if there will be any delay in filing the 2019 C corporation return, an election can be made to include the entire refundable amount in 2018.

BUSINESS INTEREST LIMITATION UNDER IRC SECTION 163(J)

The TCJA includes a limitation on the use of net business interest expense to 30% of Adjusted Taxable Income. The Stimulus Bill amends this rule for 2019 and 2020 and increases the limit from 30% of Adjusted Taxable Income to 50%. Additionally, since it is likely that 2020 income will be lower than 2019 due to the current economic circumstance, an election can be made to use the 2019 Adjusted Taxable Income for the 2020 tax year.

BONUS DEPRECIATION ALLOWED ON QUALIFIED IMPROVEMENT PROPERTY (QIP)

The Tax Cuts and Jobs Act intended to permit immediate write-off of costs related to Qualified Improvement Property. Due to a drafting error, this provision was not put into that legislation and caused QIP only to be eligible for depreciation over 39 years. The Stimulus Bill fixes this drafting error and specifically permits bonus depreciation to be taken on qualified costs retroactively. This allows amendment of 2018 and 2019 filed returns and provide a source of cash, particularly for those in the hospitality industry.

EXCISE TAX EXEMPTION

The bill also provides a temporary exception from excise tax on alcohol which is used to produce hand sanitizer. We are waiting to see if the House of Representatives will make any substantive changes to these provisions. Clearly, they are all intended to provide additional cash to taxpayers.

As the COVID-19 crisis continues to unfold, we will continually monitor the situation and tax matters surrounding it and provide timely updates as information becomes available.

Do you have questions about the CARES Act, or other tax matters? Please contact Freed Maxick at 716.847.2651 or fill out our contact form.