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Yearly Archives: 2020

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Making Sense of the Recent Tweaks to Payroll Taxes

Posted on August 10, 2020 - 10:22 pm by

There’s a measure of relief coming to some employees in the form of a short-term payroll tax break, but there are still plenty of questions of what’s the best way for small businesses to take advantage of these changes to help their workers without negatively impacting their own tax situation.

The Trump Administration recently issued a memorandum that would delay the withholding of Social Security taxes for some employees in an effort to support small businesses and workers across the country dealing with the economic crisis stemming from the COVID-19 pandemic.

The scale and volume of these tax policy tweaks can lead to some confusion for small businesses as they try to keep up with what’s going on and make informed decisions that are best for them, their employees and their bottom line.

The first thing to know is that the president’s memorandum only applies to the 6.2 percent Social Security withholding tax on employees, and not the responsibility for employers to pay on their own share of the 6.2 percent tax. And, despite some media reports suggesting otherwise, it also does not impact the Medicare insurance tax of 1.45 percent.

Here are some other things you should know about these temporary tweaks to the payroll tax:

  • Only employees who earn less than $104,000 annually qualify for the break.
  • It also does not apply to the parallel taxes on self-employment income.
  • This is not a forgiveness of an individual’s tax responsibility, but rather a temporary delay of their obligation to pay the 6.2 percent associated with Social Security from Sept. 1, 2020 through the end of the calendar year. Know that the Secretary of the Treasury can extend this delay at his discretion for up to a year.
  • Those who take advantage of the delay will not face any penalties or interest.
  • There is no relief with respect to the matching obligation of employers.
  • It appears that employers may be able to choose to continue withholding an amount equal to the deferred taxes. Additionally, there’s a lack of clarity on what employers should do for employees who initially take advantage of the tax delay in September, but then are no longer employed at that same business at the end of the year. This potentially could increase the tax liability for some employers.

Given the wide-reaching impact of this decision, it’s understandable for small business owners to be unsure of the best course of action to take. While we expect additional guidance coming from the U.S. Treasury, it’s never too early to get a head start on determining how your team will manage the implications of this significant tax policy move.

Reach out to one of our trusted tax advisors today, and let us help you navigate what is increasingly becoming a confusing and ever-changing economic landscape for small businesses.

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Beyond PPP Loans: Getting Your Hard-earned Dollars Back

Posted on July 10, 2020 - 10:37 pm by

If you’re a small business owner, you’re not immune to the economic challenges across the country as we deal with the COVID-19 pandemic, and you have likely heard about some of the programs out there to help provide financial assistance to those in need.

The most notable are the SBA’s Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL). These provided for an infusion of cash to help support payroll obligations and cover a variety of costs. But did you know that there are other opportunities for small businesses during these tough times?

Let’s start with the CARES Act, which was passed by Congress at the onset of the pandemic. One of its provisions has expanded the ability of business owners to use losses to offset income.

Business losses are called Net Operating Losses (NOLs) and occur in any given year when business expenses exceed business income. Before the CARES Act, NOLs in one year could only be carried forward indefinitely to offset 80 percent of business profits.

The CARES Act changed that. Now, NOLs for 2018, 2019, and 2020 can be carried back five years to offset 100 percent of taxable profit. This is done by either filing a special form or amending the prior year return and means you could very well benefit now from a NOL rather than wait until a future profitable year!

Seems like a slam dunk, right? Well, not exactly.

There’s a lot to consider, including as how the carryback might impact a tax break you got in a prior year. And if you have multiple businesses that file a single (what we call “consolidated”) return, there’s even more to consider. As such, it’s important to consult with a knowledgeable tax advisor, and that’s where Padgett comes into the picture.

In this ever-changing environment, it can be difficult for small businesses to keep tabs on what they need to do and, just as important, what they can do. At Padgett, we’ve been hard at work providing the advisory services our clients have needed since the beginning of the COVID-19 pandemic, including helping nearly 1,000 of our clients secure more than $58 million in funding.

Reach out to one of our trusted tax advisors today, and let us help develop and implement a plan to help your small business get the most out of the CARES Act.

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PPPLoan Forgiveness Updates

Posted on June 25, 2020 - 10:45 pm by

As we continue to navigate the challenges and uncertainties of the COVID-19 pandemic and the ongoing economic crisis, know that Padgett is working closely with the IRS, the U.S. Treasury Department, Congress, and other government agencies and member organizations to get you the very latest news regarding loan forgiveness for the Paycheck Protection Program. We have assisted nearly 900 small business owners obtain more than $58 million in funds, and we are now focused on helping business owners with the ins-and-outs of the loan forgiveness process.

The rules and regulations for PPP are changing quickly, and, while we anticipate additional guidance in the coming weeks, let us keep you in the know during this difficult time.

For instance, did you know you could be eligible for a simplified loan forgiveness application, called an EZ form that is only two pages? This option might be a great fit for sole proprietors with no employees. However, sole proprietors must deal with the salary replacement limitation.

Additionally, did you know that expenses paid with forgiven PPP loan funds are not deductible? This is important as you begin considering estimated tax payments and cash flow planning, making it especially tricky for fiscal year taxpayers. Lenders have 60 days to review the application, then the SBA has 90 days to determine if the loan is forgiven. As a result, taxpayers who will need to file returns or extensions before SBA gets back with the status of their loans will face challenges.

As you may know, rather than eight weeks, recent changes to PPP enabled borrowers to have up to 24 weeks before beginning the loan forgiveness process. However, those that received their PPP loan before June 5th have the option to choose between the original eight-week period or the new 24-week period of time. We also have been given guidance that you must submit your application no later than 10 months after the covered period ends. More importantly, guidance states that you can apply earlier if you have met the payroll and other expenses qualifiers for loan forgiveness.

Given the volume of loans distributed via PPP and the potential for a backlog in processing loan forgiveness applications toward the end of the year, it likely is best if you or your business opt to use the eight-week covered period to pay back your loans.

We also have additional clarification on the documentation required to meet the safe harbor associated with the reduction of FTE. While a “good faith effort” is still needed, the borrower must provide a written offer to rehire an individual, a written record of the offer’s rejection, and a written record of efforts to hire a similarly qualified individual. Employers also must notify the state unemployment office of any employee’s rejected rehire offer within 30 days. Borrowers are exempt if they are able to document in good faith an inability to return to the same level of business activity due to compliance with certain organizations, including the CDC and state or local governments.

There are countless other updates related to PPP as well, and Padgett is committed to working with our clients so they can get the most reliable, most up-to-date information related to the PPP loan forgiveness process. Let us know how we can help!

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Changes to Paycheck Protection Program Loan Forgiveness

Posted on June 5, 2020 - 10:49 pm by

As part of the ongoing evolution of the Paycheck Protection Program (PPP), additional policy adjustments and complementary legislation have just been approved that will ease the burden on small businesses who feared the original loan forgiveness requirements were too difficult to meet.

As you may know, PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The SBA will forgive loans if certain conditions are met, including retaining employees and spending the funds on qualifying expenses. To date, Padgett has assisted 889 small business clients in receiving more than $58 million in PPP loans.

The Paycheck Protection Flexibility Act, a bipartisan piece of legislation signed into law by the president on June 5, 2020, eases some of the restrictions to qualify for loan forgiveness and adds much-needed leniency to the program. If you’re a small business who has made use of PPP, here are some notable highlights:

  1. Current borrowers can now choose to extend the eight-week covered period to 24 weeks or keep the original eight-week period. New borrowers will have a 24-week covered period. This added flexibility should make it easier for more borrowers to reach full, or almost full, forgiveness.
  2. Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full loan forgiveness for PPP. This must be done by Dec. 31, 2020, a change from the previous deadline of June 30.
  3. The payroll expenditure requirement drops to 60 percent (down from 75 percent). Although it appears to be an oversight, the law requires borrowers to spend at least 60 percent on payroll or none of the loan will be forgiven. We believe this wasn’t the intention and are hopeful a technical change to restore the sliding scale will be made.
  4. Workforce reductions no longer necessarily result in reduced loan forgiveness. An employer can be exempt from the associated loan forgiveness reduction if they can document in good faith that either they couldn’t rehire terminated employees and hire similarly qualified employees before Dec. 31, 2020; or, were unable to restore business levels to Feb. 15, 2020 levels due to COVID-19.
  5. New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
  6. The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.

If you haven’t considered applying for a PPP loan, act fast as the deadline to apply is June 30. At Padgett, we’re ready to assist you with any questions about calculating your maximum loan amount or estimating your loan forgiveness, along with any other questions that you may have as you begin the application process.

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Making Small Matter

Posted on May 19, 2020 - 8:19 pm by

Across the country, small businesses are feeling the economic crunch from COVID-19.

From mandatory lockdowns to jittery customers, many businesses are having to make difficult decisions around managing payroll, forgoing future investments and evaluating when it is safe to reopen. Compounding these concerns are some of the complexities with the Paycheck Protection Program. While PPP has served as a lifeline for countless small businesses, understanding how to access funds and manage loan forgiveness often requires the support of a trained tax professional.

Now, more than ever, it’s important to have an accounting partner you can trust, and for small businesses that increasingly means a relationship with a small accounting group that is responsive to your needs and sympathetic to your challenges.

This recent article from Accounting Today puts the spotlight on the benefits that come with working with a small accounting group, and here are a few additional considerations to make when choosing your accounting partner:

  1. A good partner is prepared and proactive. Given today’s environment, it’s important to have an accountant who is proactive in reaching out and engaging with you on a consistent basis. Guidelines for seeking and utilizing PPP funding and managing its loan forgiveness requirements are shifting daily, and having a trusted partner who takes the lead in helping you navigate these changing rules is essential. At Padgett, we’re constantly reviewing these changes in policy and then sharing that information with our clients so they can make smart, informed decisions for their businesses.
  2. A good partner knows your health and safety is important. Out of an abundance of caution, Padgett offices are continuing to offer several no-contact options for our customers. From holding meetings via videoconferencing technologies like Zoom to various digital portals that enable you to safely and securely access the information and guidance you need, we’re striving to meet you where you are.
  3. A good partner is someone who can relate to what you are going through. It’s OK to be unsure and even scared. These are uncertain times, and small business owners are concerned for the health of their employees and families, as well as the vitality of their livelihoods. And small accounting firms like our Padgett offices are right there with you. Our offices are doing their part as they find their own ways to meet payroll, support clients and take care of our loved ones.

It’s important for small businesses to have a partner they can trust, and our team at Padgett is prepared to help them every step of the way as we all work together to emerge stronger than ever from this crisis.

 

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Clarity Needed on PPP Loan Forgiveness

Posted on May 19, 2020 - 6:13 pm by

As we continue to grapple with the challenges and uncertainty around the COVID-19 pandemic, the Paycheck Protection Program (PPP) has proven to be a lifeline for small businesses across the country. It has provided needed funds to pay employees and keep small businesses afloat, but it hasn’t come without some level of confusion and a host of questions.

Recent clarity from the Treasury Department provides certainty around whether or not a PPP loan can be forgiven if a laid-off employee is offered their job, but opts to decline to return to work. By providing a written offer to the employee, employers won’t see their chances at forgiveness reduced, thus giving needed flexibility for businesses who are navigating this challenging reality.

This is an important clarification, but other questions remain for the PPP, and that’s why PADGETT BUSINESS SERICES®, along with other organizations like AICPA and the National Federation of Independent Businesses, is asking the Treasury to provide additional clarity and relief for our small business clients.

To date, Padgett has assisted 889 small business clients in receiving more than $58 million in PPP loans with an average amount of approximately $65,200 per loan. This is a testament to the dedication of our franchisees across the country to step up and help support our clients during this time of need.

Businesses with fewer than 50 employees are being forced to make difficult choices. New social distancing requirements and varying guidelines by state to retrofit workplaces to accommodate this “new normal” can mean fewer employees, smaller groups of customers and increased capital costs. Plus, most of our clients have been closed for nearly two months, and they’re now facing accumulated fixed costs like rent or utilities.

As such, these small businesses are finding themselves hamstrung by the 75-25 regulatory standard that mandates only 25 percent of the loan can be used to address those investments or fixed costs with the remainder allocated for employee salaries.

Compounding this problem is that the eight-week payout period simply doesn’t match up with the reality on the ground. One of the challenges many of these businesses face is the discrepancies in when different parts of the country plan to re-open. For instance, while the economy is slowly beginning to open in Georgia and Florida, California recently announced plans to extend its shelter-in-place program while some of its higher education institutions intend to remain online during the fall.

As of now, the clock starts on the eight weeks when a small business receives its loan, but if the state or region they operate in is still dealing with an outbreak or a lockdown, it’s not feasible to ask them to adhere to the guidelines put in place. Many of these small businesses only have one location, tying their success to one geographic area. If that area is impacted by an outbreak or state and local restrictions, through no fault of their own they are automatically being disqualified from loan forgiveness even if they allocate 75 percent of the loan to rehiring employees.

This is why Padgett is asking policymakers to provide an exception for small businesses with fewer than 50 employees to both the 75-25 rule, as well as the eight-week payout rule. By shifting to a 50-50 split, it gives these businesses greater flexibility to address pressing costs and needs without hurting their chances of securing loan forgiveness. It also is important for the eight-week payout period to begin when the appropriate local or state leadership determines it is safe and legal for a business to reopen in a particular area, rather than upon receipt of the loan.

Fortunately, Reps. Dean Philips (D-MN) and Chip Roy (R-TX) have introduced bipartisan legislation that would loosen loan forgiveness rules for any expenses that extend beyond the allotted eight weeks. We are optimistic this policy change will be addressed quickly.

The Paycheck Protection Program is helping small businesses stay alive during one of the worst economic crises our nation has faced, but we know more work needs to be done to help our clients and small businesses across the country. Our clients should know that Padgett is actively engaged in seeing these important clarifications and changes so they can have the resources and flexibility needed to serve their customers and provide for their employees.

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