IRS raises mileage rates effective July 1, 2022

Effective July 1, 2022, the business standard mileage rate for use of an automobile (including vans, pickup trucks and panel trucks) increases from $0.585 to $0.625, and the rate for medical and relocation mileage increases from $0.180 to $0.220. Mileage related to charity is set by law and remains at $0.14 per mile. (Notice 2022-03; Announcement 2022-13.)

It is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee (W-2) travel expenses. Taxpayers also cannot claim a deduction for moving expenses incurred after December 31, 2017 at the federal level, except members of the Armed Forces on active duty moving under orders to a permanent change of station. Some non-conforming states still allow for this deduction.

Luxury vehicle limit for 2022 unchanged

The luxury vehicle limit announced for 2022 in Notice 2022‑03 remains unchanged. Pursuant to the vehicle valuation limit that applies to use of the optional fleet-average and vehicle cents-per-mile valuation methods, the maximum fair market value of the vehicle (including trucks and vans) first made available to employees in calendar year 2022 increased from $51,100 to $56,100.

Federal mileage rates January 1, 2022 and July 1, 2022

Type of mileageEffective July 1, 2022Effective January 1, 2022
 Business standard$0.625$0.585
Charity$0.140$0.140
Relocation and medical$0.220$0.180

IIAJ Retroactively Terminates Employee Retention Tax Credits

The Infrastructure Investment and Jobs Act (IIAJ) (to be signed by President Biden on November 15, 2021), retroactively ended the Employer Retention Tax Credit (ERTC) to apply only through September 30, 2021 (rather than through December 31, 2021), unless the employer is a recovery startup business. As a result of retroactive termination of the ERTC, you may need to review your payroll tax compliance (including tax deposits) to make sure that it conforms with these changes.

Background. Congress originally enacted the ERTC in the Coronavirus Aid, Relief and Economic Security (CARES) Act in March of 2020 to encourage employers to retain employees during the pandemic. Congress later extended and modified the ERTC to apply to wages paid before January 1, 2022.

Eligible employers could claim the refundable ERTC against the employer’s share of Medicare (1.45% rate) taxes equal to 70% of the qualified wages paid to each employee (up to a limit of $10,000 of qualified wages per employee per calendar quarter) in the third and fourth calendar quarters of 2021.

For the third and fourth quarters of 2021, a recovery startup business is an employer eligible to claim the ERTC. Under pre-IIAJ law, a recovery startup business was defined as a business that

  1. Began operating after February 15, 2020,
  2. Had average annual gross receipts of less than $1 million and
  3. Didn’t meet the eligibility requirement, applicable to other employers, of having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under a government order.

However, recovery startup businesses are subject to a maximum total credit of $50,000 per quarter for a maximum credit of $100,000 for 2021.

IIAJ retroactive termination. The ERTC was retroactively terminated by the IIAJ to apply only to wages paid before October 1, 2021 unless the employer is a recovery start up business. Thus, for wages paid in the fourth calendar quarter of 2021,

  1. The credit applies only to recovery startup businesses and
  2. Other employers can not claim the credit.

In connection with the continued availability of the ERTC for recovery startup businesses in the fourth quarter of 2021, the IIAJ also modified the definition of a recovery startup business so that a recovery startup business is one that

  1. Began operating after February 15, 2020, and
  2. Has average annual gross receipts of less than $1 million.

The pre-IIAJ prerequisite that a recovery startup business must not have otherwise met the requirements for an eligible employer qualifying for the ERTC, i.e., having experienced a significant decline in gross receipts or having been subject to a full or partial suspension under a government order, no longer applies. Thus, because of the modified definition, an employer that was not a recovery startup business in the third quarter of 2021 might qualify as a recovery startup business in the fourth quarter of 2021 and be able to claim the ERTC for the fourth quarter of 2021.

If you retained payroll taxes in anticipation of receiving the ERTC based on post-September 30, 2021 payroll taxes, we need to review your situation and determine how and when to repay those taxes and address any other compliance issues. We anticipate IRS will issue guidance to assist employers in handling any compliance issues.

If you have additional questions or concerns about how the retroactive termination of the ERTC will affect your business, please let us know.

The American Rescue Act of 2021 – Business Provisions

Below we have assembled a brief summary of some of the business taxpayer provisions of the American Rescue Plan Act of 2021 (ARPA), passed on March 11, 2021.

Extension of the paid sick and expanded family and medical leave tax credits

Payroll tax credits. Paid sick leave and family leave credits are extended to apply to apply to wages paid through September 30, 2021. This credit had previously only applied to wages paid up to of March 31, 2021.

Self-employment sick and family leave credits. These credits, which are creditable against the income tax for self-employed individuals, have also been extended to apply to eligible days through September 30, 2021.

Other notes. Both of these credits now expand eligible leave to include obtaining and recovering from COVID-19 immunization.

Tax-Free Treatment of Restaurant Revitalization Grants

Taxability of Restaurant Revitalization Grants . ARPA allows for tax-free treatment of the SBA Restaurant Revitalization Grants. Under ARPA, these advances aren’t included in income and taxpayers are allowed a deduction for expenses paid with these tax-free grants.

We hope you find these updates useful. If you have any questions, please don’t hesitate to contact our office.



Consolidated Appropriations Act 2021 – Business Provisions

On Sunday, December 27, 2020, the President signed into law one of the longest bills in US history. This bill, the Consolidated Appropriations Act 2021, is a sprawling 5,593 pages and contains a $900 billion relief package for aid related to the COIVD19 pandemic as well as a $1.4 trillion in annual funding for the federal government in the upcoming year.

Paycheck Projection Program (PPP)

Clarification of Tax Treatment for Forgiveness of Covered Loans. The Consolidated Appropriations Act of 2021 confirms Congress’s original intent in the CARES Act and reverses the Treasury Department’s interpretation of the tax implications of loan forgiveness, clarifying that PPP loan forgiveness will not be included in the gross income of an eligible recipient nor will any deductions paid for with PPP proceeds be disallowed or have it’s tax attributes reduced.

Covered Period Selection. Borrowers have the option of selecting any covered period length between 8 and 24 weeks after the loan origination date.

Additional Eligible Expenses. Employer-provided group insurance benefits are now considered forgivable payroll costs.  The 60/40 ratio (60% payroll expenses and 40% other expenses to achieve 100% forgiveness) has not been changed, but “other expenses” can now include expenses other than rent and utilities. This change only applies to loans that have not been forgiven yet. Additional eligible expenses include:

  • Operations expenditures such as software, product delivery, processing fees, or tracking of payroll expenses
  • Costs related to property damage and vandalism or looting that occurred during 2020 but were not covered by insurance or other compensation. Supplier costs, including those prior to the covered period that were essential to operations
  • Worker protection expenditures (PPE and investments to help recipient comply with federal health and safety guidelines)

PPP Round 2. The Act has provided for a second round of PPP loans. To qualify:

  • Revenue must have decreased by 25% (any quarter in 2019 vs. the same quarter of 2020)
  • Must have been in operation on February 15, 2020. 
  • Must have 300 employees or less
  • Must not be a publicly traded company
  • Must have used all of the first PPP loan in order to apply for second PPP loan

Borrowers may receive a loan amount of up to 2.5x the average monthly payroll costs incurred or paid during 2019 or the one year period prior to the date on which the loan is made, not to exceed $2 million. Entities in industries assigned to NAISC Code 72 (Accomodation and Food Services) may receive loans of up to 3.5x average monthly payroll costs. 

Simplified Loan Forgiveness. Loan forgiveness application and documentation is simplified for loans up to $150,000, which will be forgiven in full when the borrower signs and submits certification providing information regarding the number of employees retained, the estimated amount spent on payroll expenses, and the total loan value. 

Borrowers who have returned all or part of their PPP loan can reapply for the maximum amount forgivable as long as they have not received forgiveness. They can also work with lenders to modify the loan value if loan calculations have increased due to changes in interim final rules. 

Economic Injury Disaster Loan (EIDL)

Extension of EIDL Applications: The Consolidated Appropriations Act of 2021 extended the application deadline for EIDL loans through December 31, 2021. Eligible small businesses can still apply for a maximum loan amount of $2 million, and are now eligible to receive the full $10,000 advance grant regardless of the number of workers employed (previously $1,000 per employee).

EIDL Advance Grant and PPP Loan Forgiveness: The provisions from the previous CARES act reducing PPP loan forgiveness by the amount of advance grant received was repealed with the new act. EIDL Advances will no longer reduce PPP forgiveness. 

Tax Implications: The grants remain excluded from income, and no deductions are disallowed as a result of this income exemption.

Employee Retention Tax Credit (ERTC)

ERTC and PPP Loans. Employers who have received a PPP loan can now also qualify for the ERTC retroactively. To prevent double dipping, qualified payroll that have been taken into account for PPP loan forgiveness will not be eligible for purposes of determining the ERTC for that period. The ERTC however can be applied to qualified wages paid for using the PPP proceeds that were not forgiven by the SBA.. 

Tax Credit Hike. Beginning January 1, 2021, the ERTC rate has been increased from 50% to 70% of qualified wages. The $10,000 qualified wage limitation has also been increased to $10,000 per quarter, previously having been limited to the first $10,000 in wages per employee, per year.  As a result, employers can now enjoy a maximum credit of $7,000 for each employee per quarter, as opposed to the previous $5,000 max credit per employee for wages paid after March 12, 2020 and before January 1, 2021. .  

Eligible Employers Modifications. The Act expanded  the gross receipts test for eligible employers, reducing the required gross receipt decline from 50% to 20% of the comparable quarter. The comparable quarters are determined as follows:

  • For businesses that started operations in 2019 – same calendar quarter in 2019 and 2020 (i.e. 2019 Q3 vs 2020 Q3)
  • For businesses that started operations in 2020 – same calendar quarter in 2020 and 2021 (i.e. 2020 Q1 vs 2021 Q1)
  • Alternative Election – businesses can elect to compare immediately preceding quarters (i.e. 2020 Q1 vs 2019 Q4)
  • The above modifications are available to employers beginning January 1, 2021.

The above modifications are available to employers beginning January 1, 2021.

Extended Availability. The ERTC is now available through June 30, 2021.

Advance Payment of ERTC. Beginning January 1, 2021, employers with less than 500 employees can apply to receive the credit in advance for up to 70% of average quarterly wages paid in 2019 (or 2020 for businesses not in existence in 2019). For seasonal employers, wages from a specific calendar quarter may be used instead of the average. The advance will be reconciled against the actual credit later on, increasing the employer’s payroll tax for the calendar quarter if there is an excess.

Employee Retention Tax Credit - 2021

Extension of SBA Loan Debt Relief

Extension of Monthly Payments: The debt relief program provided for by the CARES Act, which covers principal, interest and fees payments for eligible SBA 7(a) Loans has been extended for an additional 3-month period, with payments starting on February 1, 2021. There is an extended 5-month period after the initial 3 months for businesses operating under certain hard-hit industries (food and entertainment, educational services etc.). 

Maximum Covered Payments Per Month: The SBA will only cover a maximum of $9,000 for each month, with the excess amount to be reported as additional interest to be paid at the end of the loan period. 

Limitations on Specified 7(a) Loans: Borrowers cannot receive debt relief assistance for more than one 7(a) loan that were taken out between March 27, 2020 to October 26, 2020.

Tax Implications: The debt relief is also excluded from income, with no expense disallowance as a result of the income exemption.

SBA Loan Enhancements

Temporary Fees Waiver. The SBA is expected to waive or reduce administrative fees related to SBA 7(a) and 504 loan applications.

Increased 7(a) Loan Guarantee. The SBA will now guarantee at least 90% of the balance of 7(a) loans, up from 75% to 85% (depending on loan amount).

SBA Express Loans. The maximum loan amount is temporarily increased to $1 million and the SBA guarantee rate is modified to the following:

  1. Loans less than or equal to $350,000 – up to 75%
  2. Loans greater than $350,000 – up to 50%

All of the above provisions are only applicable through September 30, 2021, as the act specifically provided for a prospective repeal by October 1, 2021.

Grants for Shuttered Venue Operators

Eligibility Requirements The person or entity must be a live venue operator or promoter, which includes the following:

  • Theaters
  • Museums
  • Cinemas
  • Talent managers and representatives

The grantee  must have been operational on or before February 29, 2020 and must have experienced at least a 25% reduction in gross receipts on a quarter-to-quarter basis. The grantee must also be operational, or is expected to resume operations, by the grant date. 

Exclusions. The Act specifically prohibits the following persons or entities from receiving the grant, that meets the following criteria:

  1. At least one of the following:
    1. Publicly-owned companies
    2. Receiving more than 10% of gross revenue from Federal funding
  2. At least two of the following:
    1. Operating in more than one country
    2. Operating in more than ten states
    3. Employing more than 500 employees as of February 29, 2020

Priority Periods The grant is provided on a priority basis with applicants who had experienced a 90% reduction in gross revenues on an April to December 2019 and 2020 comparative period, getting prioritized in the first 14 days. Second priority (over the next 14 days) is provided to applicants with a 70% reduction in revenues. Applications from the remaining eligible applicants will be processed after the initial 28-day priority period.  

Grant Amount The maximum grant amount that an eligible person or entity can receive is the lesser of:

  1. Operational before January 1, 2019 – 45% of gross revenue for 2019;
  2. Operational during 2019 – average of full months revenue multiplied by 6; or
  3. $10 million

Supplemental Grants Additional grants may be awarded after the initial grant if the grantee still experiences a 70% reduction in gross revenues by April 1, 2021. The SBA however, must process all initial grant applications first before supplying any supplemental grants. The supplemental grant is limited to 50% of the original grant received.

Use Of Grant Funds The proceeds from the grant may be used for most of the operational and business expenses, except for the following:

  • Purchase of Real Estate
  • Payment of Interest for Debts Incurred after February 15, 2020
  • Capital Investments 
  • Political Contributions

The funds are to be used within one year of disbursement (18 months for supplemental grants) and may be used for expenses incurred during the covered period March 1, 2020 to December 31, 2021 (March 1, 2020 to June 30, 2022 for supplemental grants).

Tax Implications: The grant received is excluded from income, and no deductions are disallowed as a result of this income exemption.

Meals Deduction

Temporary Allowance of Full Deduction for Business Meals. For amounts paid or incurred after December 31, 2020 and before January 1, 2023, expenses for food or beverages provided by a restaurant are eligible for 100% deduction. 

As always, if you have questions about how this bill impacts you, please contact our office.

5 key points about bonus depreciation

You’re probably aware of the 100% bonus depreciation tax break that’s available for a wide range of qualifying property. Here are five important points to be aware of when it comes to this powerful tax-saving tool.

1. Bonus depreciation is scheduled to phase out

Under current law, 100% bonus depreciation will be phased out in steps for property placed in service in calendar years 2023 through 2027. Thus, an 80% rate will apply to property placed in service in 2023, 60% in 2024, 40% in 2025, and 20% in 2026, and a 0% rate will apply in 2027 and later years. Keep in mind, we are in an election year, and tax law can change with adminstriations and changes to budget.

For certain aircraft (generally, company planes) and for the pre-January 1, 2027 costs of certain property with a long production period, the phaseout is scheduled to take place a year later, from 2024 to 2028.

Of course, Congress could pass legislation to extend or revise the above rules.

2. Bonus depreciation is available for new and most used property

In the past, used property didn’t qualify. It currently qualifies unless: 

  • The taxpayer previously used the property and
  • The property was acquired in certain forbidden transactions (generally acquisitions that are tax free or from a related person or entity).

3. Taxpayers should sometimes make the election to turn down bonus depreciation 

Taxpayers can elect to reject bonus depreciation for one or more classes of property. The election out may be useful for sole proprietorships, and business entities taxed under the rules for partnerships and S corporations, that want to prevent “wasting” depreciation deductions by applying them against lower-bracket income in the year property was placed in service — instead of against anticipated higher bracket income in later years.

Note that business entities taxed as “regular” corporations (in other words, non-S corporations) are taxed at a flat rate.

4. Bonus depreciation is available for certain building improvements

Before the 2017 Tax Cuts and Jobs Act (TCJA), bonus depreciation was available for two types of real property: 

  • Land improvements other than buildings, for example fencing and parking lots, and
  • “Qualified improvement property,” a broad category of internal improvements made to non-residential buildings after the buildings are placed in service.

The TCJA inadvertently eliminated bonus depreciation for qualified improvement property.

However, the 2020 Coronavirus Aid, Relief and Economic Security Act (CARES Act) made a retroactive technical correction to the TCJA. The correction makes qualified improvement property placed in service after December 31, 2017, eligible for bonus depreciation.

5. 100% bonus depreciation has reduced the importance of “Section 179 expensing”

If you own a smaller business, you’ve likely benefited from Sec. 179 expensing. This is an elective benefit that — subject to dollar limits — allows an immediate deduction of the cost of equipment, machinery, off-the-shelf computer software and some building improvements. Sec. 179 has been enhanced by the TCJA, but the availability of 100% bonus depreciation is economically equivalent and has greatly reduced the cases in which Sec. 179 expensing is useful.

We can help

The above discussion touches only on some major aspects of bonus depreciation. This is a complex area with tax implications for transactions other than simple asset acquisitions. Please feel free to reach out if you have any questions on this topic.

CARES Act made changes to excess business losses

The Coronavirus Aid, Relief and Economic Security (CARES) Act made changes to excess business losses. This includes some changes that are retroactive and there may be opportunities for some businesses to file amended tax returns.

If you hold an interest in a business, or may do so in the future, here is more information about the changes.

Deferral of the excess business loss limits

The Tax Cuts and Jobs Act (TCJA) provided that net tax losses from active businesses in excess of an inflation-adjusted $500,000 for joint filers, or an inflation-adjusted $250,000 for other covered taxpayers, are to be treated as net operating loss (NOL) carryforwards in the following tax year. The covered taxpayers are individuals, estates and trusts that own businesses directly or as partners in a partnership or shareholders in an S corporation.

The $500,000 and $250,000 limits, which are adjusted for inflation for tax years beginning after calendar year 2018, were scheduled under the TCJA to apply to tax years beginning in calendar years 2018 through 2025. But the CARES Act has retroactively postponed the limits so that they now apply to tax years beginning in calendar years 2021 through 2025.

The postponement means that you may be able to amend:

  1. Any filed 2018 tax returns that reflected a disallowed excess business loss (to allow the loss in 2018) and
  2. Any filed 2019 tax returns that reflect a disallowed 2019 loss and/or a carryover of a disallowed 2018 loss (to allow the 2019 loss and/or eliminate the carryover).

Note that the excess business loss limits also don’t apply to tax years that begin in 2020. Thus, such a 2020 year can be a window to start a business with large up-front-deductible items (for example capital items that can be 100% deducted under bonus depreciation or other provisions) and be able to offset the resulting net losses from the business against investment income or income from employment (see below).

Changes to the excess business loss limits 

The CARES Act made several retroactive corrections to the excess business loss rules as they were originally stated in the 2017 TCJA.

Most importantly, the CARES Act clarified that deductions, gross income or gain attributable to employment aren’t taken into account in calculating an excess business loss. This means that excess business losses can’t shelter either net taxable investment income or net taxable employment income. Be aware of that if you’re planning a start-up that will begin to generate, or will still be generating, excess business losses in 2021.

Another change provides that an excess business loss is taken into account in determining any NOL carryover but isn’t automatically carried forward to the next year. And a generally beneficial change states that excess business losses don’t include any deduction under the tax code provisions involving the NOL deduction or the qualified business income deduction that effectively reduces income taxes on many businesses. 

And because capital losses of non-corporations can’t offset ordinary income under the NOL rules:

  • Capital loss deductions aren’t taken into account in computing the excess business loss and
  • The amount of capital gain taken into account in computing the loss can’t exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Contact us with any questions you have about this or other tax matters.

CARES Act Part 1 – Business Provisions

On Friday, March 27th, 2020 the President signed into law the CARES Act. This legislation contained very significant tax law changes, the majority of which are temporary and will only be relevant for the 2020 calendar year. We’ve spent the last five days digging through this 880 page legislation to highlight the most relevant changes for you. 

Below is a summary of these provisions, as they relate to businesses:

Paycheck Protection Program (PPP)

PPP loans are available to small business owners (with under 500 employees) or self-employed individuals (sole proprietorships or independent contractors), intended to be only used for the following operating costs:

  1. Payroll costs (including payments to contractors)
  2. Interest on mortgage obligations
  3. Rent
  4. Utilities
  5. Interest on other debt obligations incurred before the PPP

Eligible entities can borrow up to the lesser of $10 million or 2.5 times the average monthly payroll for the 1-year period before loan application, of which a portion can be forgiven subject to the provisions of the CARES Act. The amount of forgiveness is based on the total of costs 1 to 4 above over the 8-week period after loan grant, subject to reduction based on number of employees laid off and employee pay cuts implemented.  No collaterals or personal guarantees are required for application. PPP loans are expected to be made available through all SBA-approved lenders soon and you’ll have until June 30, 2020 to apply.

These loans are best suited for businesses that intend to bring back employees that have been laid off or furloughed, or employers who need additional capital to retain their existing workforce. 

SBA Loan Debt Relief

The SBA will pay all principal, interest and fees on existing 7(a) SBA loans for six months (disaster loans, PPP loans, 504 loans, and microloans are not eligible).


Economic Injury Disaster Loan (EIDL) and Grants

Small businesses and self-employed individuals can also apply for EIDLs, especially now with the CARES Act providing waivers for some stricter requirements (no available credit elsewhere and must have been in business for at least 1 year).  You can borrow up to $2 million and would just have to provide proof of economic injury for the application. Unlike the PPP loan, EIDL provides more leeway in terms of the type of expenses it can be used for. As a working capital loan, you can use the proceeds to pay for all operational costs, as well as any outstanding debts obligations you were unable to meet due to the disaster.

The CARES Act also allows for a $10,000 emergency grant advance that you can receive within 3 days of an EIDL application. And the kicker? You don’t have to pay any of it back, regardless of whether your EIDL was approved or not.

EIDLs are available until December 31, 2020, directly through the SBA website.

Employee Retention Tax Credit (ERTC)

This provision would allow employers to claim a refundable payroll tax credit equal to 50 percent of a maximum of $10,000 per employee of qualified wages paid (i.e. a maximum credit of $5,000 per employee) from March 13, 2020 to December 31, 2020. The credit is restricted to employers who see a full or partial suspension of operations due to a shutdown order or who see gross receipts decline by more than 50 percent relative to the same quarter the previous year. For employers with more than 100 full-time employees, the credit is restricted to wages paid to employees not providing service due to COVID-19. For employers with fewer than 100 full-time employees, it is applicable to all wages. 

This credit is not available to businesses who receive small business interruption loans and is subject to recapture. 

Payroll Tax Payment Deferral
The CARES Act provides for the deferral of paying certain employer payroll taxes through the end of 2020. Applicable payroll taxes include (1) 50% of the self-employment taxes, and (2) 100% of the employer portion of FICA taxes. Payments for the deferred payroll taxes are expected to be due in two equal installments, with one-half paid by December 31, 2021, and the other by December 31, 2022.
It is important to note that the above provisions are not available for any businesses that take advantage of the loan forgiveness program of the PPP.

Qualified Improvement Property

This provision would correct an error in the 2017 Tax Cuts and Jobs Act preventing businesses, particularly in the hospitality industry, from writing off facility improvement costs immediately rather than over 39 years. This change is intended to allow businesses to amend prior year returns to provide liquidity during the outbreak and to correct the technical issue.

Net Operating Losses (NOLs)

The CARES Act allows for a net operating loss carry-back for losses arising in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2021 to offset income in the preceding five (5) years. 


Should I take the PPP, EIDL, or the payroll tax credits?

Finding out the best program to take advantage of ultimately requires a separate evaluation for each individual business, considering industrial, operational, and financial requirements. We at Launch Consulting are always here to help – whether with assessing which loans or credit to take, or even with applying for the loans. Please feel free to reach out if you need assistance.

Looking for more information? Here’s a link to the Senate Committee on Small Business & Entrepreneurship’s Guide for Small Business Owners.  

Families First Coronavirus Response Act (FFCRA) – Effective April 1, 2020

PAID LEAVE

The Families First Coronavirus Response Act was Phase 2 of the government’s plan to combat COVID19. This Act goes into effect on April 1, 2020 and requires companies to provide both limited paid sick leave and expanded family leave to employees impacted by the COVID-19 outbreak. 

The Emergency Family and Medical Leave Expansion Act (EFMLEA) and the Emergency Paid Sick Leave Act (EPSLA) benefits are limited to individuals directly affected by COVID-19, whether they are caring for themselves or others.  Benefits begin April 1, 2020 and are in effect through the end of this year. These provisions apply to employers with fewer than 500 employees. Businesses with 50 or fewer employees can exempt themselves from these requirements if complying would jeopardize the viability of the small business as a going concern.

Employers may claim 100 percent of COVID-19-related “qualified wages” as a refundable credit against federal form 941 payroll taxes or self-employment tax in the case of a self-employed individual.

Below is a summary of both of these provisions.

Emergency Paid Sick Leave

Who this Impacts: Employers under 500 employees, self-employed individuals.

Covered Employees: Part-time and full time employees, regardless of length of employment.

Amount of Leave:

  • Full-time employees: 80 hours of paid leave
    • Calculated at their regular rate of pay (as calculated by the FLSA) or the minimum wage, whichever is greater.
  • Part-time employees: Average hours worked over a two-week period.
    • If an employee works a variable schedule, it is the average number of hours they worked per day over the previous six months. If the employee has not worked this long, it is the reasonable expectation of the employee at the time of hire or the average number of hours per day the employee would normally be scheduled.

Who is Eligible: Eligible employees include the following:

“Tier 1”: Employee must be compensated at their regular rate, up to $511 per day ($5,110 total, $511 x 10 business days).

  1. Employees subject to a federal, state, or local quarantine or isolation order related to COVID-19 (federal, state, local directives and worksite closures do not count).
  2. Employees that have been advised by a health care provider to self-quarantine due to concerns related to COVID-19.
  3. Employees that are experiencing symptoms of COVID-19 and seeking a medical diagnosis.

“Tier 2:” Employee must be compensated at two-thirds of their regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day ($2,000 total, $200 x 10 business days).

  1. The employee is caring for an individual under Tier 1
  2. The employee is caring for a son or daughter of the employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID-19 precautions or is experiencing a “substantially similar condition” specified by the government

Expanded Family and Medical Leave Expansion Act (EFMLEA)

Covered Employees: An employee has been employed for at least 30 calendar days (based on hire date).

Covered Employers: An employer with fewer than 500 employees.

Amount of Leave: 12 weeks, the first 2 weeks are unpaid leave and the remaining 10 weeks are paid leave with reinstatement rights.

  • First 10 days may be unpaid (but employees may use other paid leaves during this time – most employees will qualify for Emergency Paid Sick Leave to cover the first 10 days).

PAID LEAVE F.A.Q’s

Additional Q&A’s can be found on the Department of Labor website here

If I am a small business with fewer than 50 employees, am I exempt from the requirements to provide paid sick leave or expanded family and medical leave?

A small business is exempt from certain paid sick leave and expanded family and medical leave requirements if providing an employee such leave would jeopardize the viability of the business as a going concern. This means a small business is exempt from mandated paid sick leave or expanded family and medical leave requirements only if the:

  • employer employs fewer than 50 employees;
  • leave is requested because the child’s school or place of care is closed, or child care provider is unavailable, due to COVID-19 related reasons; and
  • an authorized officer of the business has determined that at least one of the three conditions described in Question 58 is satisfied.

The Department encourages employers and employees to collaborate to reach the best solution for maintaining the business and ensuring employee safety. 

Are the paid sick leave and expanded family and medical leave requirements retroactive?

No.

When does an employer count employees to determine if they are at or above 50 or 500?

The employer should count the total full-time and part-time employees within the United States, District of Columbia, or any Territory or possession of the United States at the time the employee’s leave is to be taken (April 1st at the earliest).

If you have any additional questions on how these rules impact your business, please contact our office.

The SECURE Act – What You Need to Know

Congress recently passed—and the President signed into law—the SECURE Act, landmark legislation that affects the rules for creating and maintaining employer-provided retirement plans. Whether you currently offer your employees a retirement plan, or are planning to do so, you should consider how these new rules may affect your current retirement plan (or your decision to create a new one).

Here is a look at some of the more important elements of the SECURE Act that have an impact on employer-sponsors of retirement plans. The changes in the law apply to both large employers and small employers, but some of the changes are especially beneficial to small employers. However, not all of the changes are favorable, and there may be steps you could take to minimize their impact. Please give me a call if you would like to discuss these matters.

It is easier for unrelated employers to band together to create a single retirement plan. A multiple employer plan (MEP) is a single plan maintained by two or more unrelated employers. Starting in 2021, the new rules reduce the barriers to creating and maintaining MEPs, which will help increase opportunities for small employers to band together to obtain more favorable investment results, while allowing for more efficient and less expensive management services.

New small employer automatic plan enrollment credit. Automatic enrollment is shown to increase employee participation and retirement savings. Starting in 2020, the new rules create a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to an existing plan start-up credit, and is available for three years. The new credit is also available to employers who convert an existing plan to a plan with an automatic enrollment design.

Increased credit for small employer pension plan start-up costs. The new rules increase the credit for plan start-up costs to make it more affordable for small businesses to set up retirement plans. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit on the credit to the greater of

  1. $500, or
  2. The lesser of:
    1. $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan, or
    2. $5,000.

The credit applies for up to three years.

Expand retirement savings by increasing the auto enrollment safe harbor cap. An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or non-elective contributions under either of two safe harbor plan designs and meets certain other requirements. One of the safe harbor plans is an automatic enrollment safe harbor plan.

Starting in 2020, the new rules increase the cap on the default rate under an automatic enrollment safe harbor plan from 10% to 15%, but only for years after the participant’s first deemed election year. For the participant’s first deemed election year, the cap on the default rate is 10%.

Allow long-term part-time employees to participate in 401(k) plans. Currently, employers are generally allowed to exclude part-time employees (i.e., employees who work less than 1,000 hours per year) when providing certain types of retirement plans—like a 401(k) plan—to their employees. As women are more likely than men to work part-time, these rules can be especially harmful for women in preparing for retirement.

However, starting in 2021, the new rules will require most employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule), or three consecutive years of service where the employee completes at least 500 hours of service per year. For employees who are eligible solely by reason of the new 500-hour rule, the employer will be allowed to exclude those employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.

Looser notice requirements and amendment timing rules to facilitate adoption of nonelective contribution 401(k) safe harbor plans. The actual deferral percentage nondiscrimination test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two plan designs (referred to as a “401(k) safe harbor plan”), as well as certain required rights and features, and satisfies a notice requirement. Under one type of 401(k) safe harbor plan, the plan either

  1. Satisfies a matching contribution requirement, or
  2. Provides for a nonelective contribution to a defined contribution plan of at least 3% of an employee’s compensation on behalf of each nonhighly compensated employee who is eligible to participate in the plan.

For plan years beginning after Dec. 31, 2019, the new rules change the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection, and facilitate plan adoption. The new rules eliminate the safe harbor notice requirement, but maintain the requirement to allow employees to make or change an election at least once per year. The rules also permit amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time are allowed if the amendment provides

  1. A nonelective contribution of at least 4% of compensation (rather than at least 3%) for all eligible employees for that plan year, and
  2. The plan is amended no later than the last day for distributing excess contributions for the plan year (i.e., by the close of following plan year).

Expanded portability of lifetime income options. Starting in 2020, the new rules permit certain retirement plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan, or IRA, of a lifetime income investment or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan. This change permits participants to preserve their lifetime income investments and avoid surrender charges and fees.

Qualified employer plans barred from making loans through credit cards and similar arrangements. For loans made after Dec. 20, 2019, plan loans may no longer be distributed through credit cards or similar arrangements. This change is intended to ensure that plan loans are not used for routine or small purchases, thereby helping to preserve retirement savings.

Nondiscrimination rules modified to protect older, longer service participants in closed plans. Starting in 2020, the nondiscrimination rules as they pertain to closed pension plans (i.e., plans closed to new entrants) are being changed to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer-service employees as they near retirement.

Plans adopted by filing due date for year may be treated as in effect as of close of year. Starting in 2020, employers can elect to treat qualified retirement plans adopted after the close of a tax year, but before the due date (including extensions) of the tax return, as having been adopted as of the last day of the year. The additional time to establish a plan provides flexibility for employers who are considering adopting a plan, and the opportunity for employees to receive contributions for that earlier year.

New annual disclosures required for estimated lifetime income streams. The new rules (starting at a to-be-determined future date) will require that plan participants’ benefit statements include a lifetime income disclosure at least once during any 12-month period. The disclosure will have to illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant s surviving spouse and a single life annuity.

Fiduciary safe harbor added for selection of annuity providers. When a plan sponsor selects an annuity provider for the plan, the sponsor is considered a plan “fiduciary,” which generally means that the sponsor must discharge his or her duties with respect to the plan solely in the interests of plan participants and beneficiaries (this is known as the “prudence requirement”).

Starting on Dec. 20, 2019 (the date the SECURE Act was signed into law), fiduciaries have an optional safe harbor to satisfy the prudence requirement in their selection of an insurer for a guaranteed retirement income contract, and are protected from liability for any losses that may result to participants or beneficiaries due to an insurer’s future inability to satisfy its financial obligations under the terms of the contract. Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a plan.

Increased penalties for failure-to-file retirement plan returns. Starting in 2020, the new rules modify the failure-to-file penalties for retirement plan returns.

The penalty for failing to file a Form 5500 (for annual plan reporting) is changed to $250 per day, not to exceed $150,000.

A taxpayer’s failure to file a registration statement incurs a penalty of $10 per participant per day, not to exceed $50,000.

The failure to file a required notification of change results in a penalty of $10 per day, not to exceed $10,000.

The failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.