Tax and Financial Planning in the Time of COVID-19 Presented by - - PowerPoint PPT Presentation

The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but not limited to, an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought. Assurance, tax, and consulting offered through Moss Adams LLP. Investment advisory services offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.

Tax and Financial Planning in the Time of COVID-19

Presented by Moss Adams - Dan Cheyney, Sarah McKnight and Kelsey Sjoberg Fisher Phillips – Samantha Monsees and Karl Lindegren

Presenters

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Kelsey Sjoberg, CPA

Tax Senior Manager

Sarah McKnight, CPA

Tax Senior Manager

Dan Cheyney, CPA

Partner, National Practice Leader

Sam antha Monsees

Attorney - Associate

Karl Lindegren

Attorney - Partner

Objectives

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• Families First Coronavirus Response Act (FFCRA)
• Paycheck Protection Program
• Employee Retention Credit
• Delay of Payment of Employer Payroll Taxes
• Overview of tax provisions in the CARES Act
• SBA Economic Injury Disaster Loans
• Review of compliance filing changes
• Key takeaways

Summary of new payroll provisions

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Provision What is it? Employee count provisions Potential Benefit

The Families First Coronavirus Response Act:

Expansion of Paid Family & Medical Leave Act and Sick Leave

Requirement to provide paid Sick (2 weeks at max $511 or $200/day) or Family Medical Leave (12 weeks of 10 weeks total at max $200/day) Required for employers with less than 500 employees on the date of leave. Common control of multiple entities may apply. 100% payroll tax credit for wages paid CARES Act:

Paycheck Protection Program (SBA loan with

potential forgiveness) Loan for 2.5 times your monthly payroll expense to pay: payroll, benefits, rent, utilities, mortgage

• interest. Max rate of 4%

Less than 500 employees, or a franchise listed on SBA franchisee list. Loan forgiven for payments made on qualifying expenses and for keeping

• r rehiring employees

Cannot be used to pay for wages for which a credit is allowed under FFCRA.

** Details on this slide are for comparison purposes only. Please consult your advisors for your specific circumstances.

Summary of new payroll provision continued

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Provision What is it? Employee count provisions Potential Benefit

CARES Act:

Employee retention credit

Employment tax credit for businesses fully or partially suspended during calendar quarter due to orders from an appropriate government authority OR A business experiencing a significant decline in Gross Receipts, 50% or less than PY same quarter

• If over 100 employees: wages

must be for NOT working

• If under 100 employees any

wages Common control rules apply for employee count Employment tax credit of 50% of wages up to $10,000 of wages per employee/ per quarter Reduced by credits allowed under FFCRA and not eligible if loan taken under the Paycheck Protection Program CARES Act: Delay of payment

• f employer payroll taxes

Delay of payment of payroll taxes due from March 27, 2020 to December 31, 2020 50% payable by December 31, 2021 and remaining 50% by December 31, 2022 Not available if have loan forgiveness under Paycheck Protection Program

** Details on this slide are for comparison purposes only. Please consult your advisors for your specific circumstances.

Families First Coronavirus Response Act (FFCRA)

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HOW THE FAMILIES FIRST CORONAVIRUS RESPONSE ACT IMPACTS YOUR ORGANIZATION

Presented by: Samantha Monsees, Kansas City Karl Lindegren, Irvine March 30, 2020

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FAMILIES FIRST CORONAVIRUS RESPONSE ACT OVERVIEW

• Law signed 3/18/2020.
• DOL has started issuing guidance, some of which clarifies gray areas and other

aspects of which are very different than what was first believed. Keep up to date!

• Leave Provisions Go Into Effect 15 Days After Enactment (DOL Says April 1)
• Leave Provisions are temporary (Sunsets 12/31/2020).
• Paid and Unpaid Leave for Coronavirus-Related Reasons
• Emergency Paid Sick Leave
• Emergency Family and Medical Leave Act (Expands FMLA)
• Reimbursement to Employers as Tax Credits

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EMERGENCY PAID SICK LEAVE

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EMERGENCY PAID SICK LEAVE Qualifying Employers/Employees

• Employers with 1-499 employees
• Any employee who works for employer is eligible
• No minimum days/hours of employment

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EMERGENCY PAID SICK LEAVE Qualifying Reasons

Must provide paid sick time “to the extent the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19. (2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. (3) The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. (4) The employee is caring for an individual who is subject to an order or self-quarantine as described above. (5) The employee is caring for a son or daughter if school or child care is closed/unavailable. (6) The employee is experiencing “any other substantially similar condition” specified by HHS (catch all).

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EMERGENCY PAID SICK LEAVE Employee Wages

If the EMPLOYEE is sick, employee is entitled to:

• Full-time Employees – 80 hours of paid sick leave
• Part-time Employees – 40 hours
• Pay is based on the employee’s average number of work hours in a two-week
• period. If employed for less than 6 months, the average number of hours per

week the employee would normally be scheduled

• Rate of Pay – employee’s regular rate, federal or local minimum wage
• Whatever is HIGHER

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EMERGENCY PAID SICK LEAVE Employee Wages

If the Employee needs leave for a reason related to OTHERS: employee is entitled to:

• Full-time Employees – 80 hours of paid sick leave
• Part-time Employees – 40 hours
• Pay is based on the employee’s average number of work hours in a two-week
• period. If employed for less than 6 months, the average number of hours per

week the employee would normally be scheduled

• Rate of Pay – 2/3 the Employee’s regular rate, federal or local minimum

wage

• Whatever is HIGHER

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EMERGENCY PAID SICK LEAVE Qualifying Reasons

Must provide paid sick time “to the extent the employee is unable to work (or telework) due to a need for leave because:

(1) The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19. FULL RATE OF PAY (2) The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19. FULL RATE OF PAY (3) The employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis. FULL RATE OF PAY (4) The employee is caring for an individual who is subject to an order or self-quarantine as described

• above. 2/3 RATE OF PAY

(5) The employee is caring for a son or daughter if school or child care is closed/unavailable. 2/3 RATE OF PAY (6) The employee is experiencing “any other substantially similar condition” specified by HHS (catch all) 2/3 RATE OF PAY

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EMERGENCY PAID SICK LEAVE Employee Wages

Capped at the following levels:

• FULL RATE OF PAY
• Capped at $511 per day and $5,110 in the aggregate per person for qualifying reasons

(1), (2) and (3).

• 2/3 RATE OF PAY
• Capped at $200 per day and $2,000 in the aggregate per person for qualifying reasons

(4), (5) and (6).

• You may permit employees to us other accrued time off to supplement remaining 1/3 of

pay

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EMERGENCY PAID SICK LEAVE Exemptions

• Exemption
• An employer of an employee who is a health care provider or an emergency

responder may elect to exclude such employee from the application of this section.

• Secretary of Labor has the authority for good cause to issue regulations:
• T
• exclude certain health care providers and emergency responders from the

definition of “eligible employee”

• T
• exempt small businesses with fewer than 50 employees from leave to care for a

son or daughter if school or child care is closed/unavailable when the imposition of such requirement would jeopardize the viability of the business as a going concern

• “As necessary” (catch-all)

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EMERGENCY PAID SICK LEAVE Additional General Rules

• Sick leave does not carry over
• Employer may not require employee as a condition of

paid leave to find a replacement to cover scheduled hours

• Employer may not require employee to use other paid

leave provided by the employer before using this paid sick leave – employee can choose

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EMERGENCY PAID SICK LEAVE Notice Requirements

• Employers: Employers must post a notice regarding the

requirements of the law.

• The Secretary of Labor created a model notice to give

to employees. You can also find it on our website under Alerts.

• Employees: After the first workday (or portion thereof)

an employee receives paid sick leave, the employer may “require the employee to follow reasonable notice procedures in order to continue receiving such paid sick time.”

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EMERGENCY FAMILY AND MEDICAL LEAVE

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT Qualifying Employers/Employees

• Employers with 1-499 employees.
• Any employee who worked for employer for 30 days prior to leave

and has a qualifying reason is eligible (no requirement of 12 months/1250 hours).

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT Qualifying Reasons

12 weeks of job protected leave ONLY when:

• “The employee is unable to work (or telework) due to the need for leave to care

for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.”

• Likely FMLA definition of “son or daughter” will apply.

“Public Health Emergency”

• An emergency with respect to COVID-19 declared by a Federal, State or local

authority.

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT How Does it Work

• First 10 days of EFMLA may be unpaid
• An employee may elect to substitute accrued PTO, vacation, or sick leave to cover any portion of

first 10 days.

• Employer cannot require an employee to substitute such leave.
• Eligible employees may take Emergency Paid Sick Leave (if applicable) for the first 10 days of EFMLA

leave

• After the first 10 days:
• Compensated at 2/3 of the regular rate.
• Part-time employees/irregular schedule pay is calculated the same as Emergency Paid Sick Leave.
• Pay is capped at $200 per day and $10,000 in aggregate per employee.
• EFMLA has the same exemptions as the Emergency Paid Sick Leave.

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT Job Restoration/Reinstatement

• If 25 or more employees, traditional restoration obligation –

Employees must be restored to the same or “equivalent” job.

• If fewer than 25 employees, the traditional job reinstatement

provisions of the FMLA may not apply (note this does not excuse provision of E-FMLA).

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT Job Restoration/Reinstatement Continued

If fewer than 25 employees, the traditional job reinstatement provisions of the FMLA do not apply IF:

• The employee takes E-FMLA
• The position does not exist due to economic conditions or other changes in operating

conditions of the employer (i) that affect employment; and (ii) are caused by a public health emergency during the period of leave

• The employer makes reasonable efforts to restore the employee to an equivalent position,

with equivalent pay, benefits, and other terms

• If reasonable efforts to restore to an equivalent position fail, the employer makes

reasonable efforts to contact the employee if an equivalent position becomes available during the 1 year period.

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EMERGENCY FAMILY AND MEDICAL LEAVE ACT Notice Requirements

Employers: Employers must post a notice regarding the requirements of the law (or email/mail it to employees). This is the same poster we mentioned for EPSLA. It is on our website under

• Alerts. Employers must also post the regular poster required by the

FMLA. Employees: Where the necessity for leave is foreseeable, an employee shall provide the employer with notice of leave “as is practicable.”

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TAX CREDITS Emergency Paid Sick Leave and Emergency FMLA

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TAX CREDITS

• For EPSLA, the tax credits for qualified paid sick leave wages are capped at
• $511 per day per/$5,110 per person for qualifying reasons (1), (2) and (3).
• $200 per day/$2,000 per person for qualifying reasons (4), (5) and (6).
• For EFMLA, the tax credits are capped at $200 per day/$2,000 total
• The tax credits are applied against employer Social Security and Medicare taxes, but

employers are reimbursed if their costs for qualified leaves exceed the taxes they would owe.

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SCENARIOS

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SCENARIO 1

Sally has been employed full-time for 20 days at a company which employs 40 people. Sally is not eligible to receive any paid time off under her employer’s policies. Sally has a sore throat and a fever of 100.7 and cannot report to work. Sally is waiting to be seen by her doctor. What benefits is Sally entitled to while she is not working?

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SCENARIO 1 CONTINUED

*Before April 1, 2020: Consider placing Sally on either unpaid leave or paying her even though she is not entitled until April 1, 2020. *After April 1, 2020:

• Emergency Paid Sick Leave – 80 hours at her regular rate
• Sally would not be entitled to EFMLA because she was not employed

for at least 30 days prior to the first day of her leave; and the reason for leave is not because she needs to care for a child who is at home due to a government ordered school closure.

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SCENARIO 2

Sally has been employed full-time for 45 days at a company which employs 40 people. As of today, Sally has accrued three (3) days of Paid Time Off under the employer’s Policies. The school where Sally’s fourth-grade daughter attends is closed until the end of April. Sally is unable to work from home during this time. What benefits is Sally entitled to receive during this time?

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SCENARIO 2 CONTINUED

*Before April 1, 2020: Place her on a leave of absence with pay for three (3) days and consider paying her even though she has no other leave until 4/1/2020. *After April 1, 2020:

• Emergency Paid Sick Leave – 80 hours at 2/3 her regular rate of pay
• Emergency Family and Medical Leave Act – up to 12 weeks of job protected leave
• The first ten (10) days is unpaid (but could be paid at 2/3 her regular rate of

pay under Emergency Sick Leave).

• After the 10 days, Sally is paid at 2/3 her regular rate of pay
• Sally may elect use her 3 days of PTO, but she can not be required to

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Frequently Asked Questions

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FREQUENTLY ASKED QUESTIONS Exemptions for Small Employers

Q: Our Company has fewer than 50 employees, is there an exemption for our Company? A: Possibly. The Secretary of Labor has authority for good cause to exempt businesses with fewer than 50 employees from the provisions of the EPSLA and EFMLA that relate to the childcare related leaves when the child’s school is closed. This exemption will not apply to other provisions of the EPSLA. The Department of Labor (DOL) will be issuing guidance to employers on the criteria that it will consider in establishing exemptions.

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FREQUENTLY ASKED QUESTIONS Government Mandated or Voluntary Closure

Q: If our Company is required to shut down due to a government order mandating the closure of our business, would the employees be covered by the new law? What if the Company closes voluntarily for lack of business? A: No. The most recent DOL guidance issued March 26, 2020 makes clear that if the employer closes its business (in whole or in part) for lack of business or due to a government mandated shutdown (before or after April 1), employees who are impacted by the closure are not entitled to benefits under the Emergency Paid Sick Leave Act or the EFMLA.

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FREQUENTLY ASKED QUESTIONS Furloughs

• Q. If the employer remains open but furloughs (reduces an employee’s

hours or days of work) on or after April 1, 2020 (the effective date of the FFCRA), can the employee receive paid sick leave or expanded family and medical leave?

• A. No. If the employer furloughs employees because it does not have

enough work or business for employees (even if the reason is due to a government mandated closure), employees are not entitled to take emergency paid sick leave or EFMLA. *If you have 100 or more employees and are doing a layoff, RIF, or reduction in hours that will impact 50 or more employees, you need to work with counsel regarding potential WARN Act obligations.

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How Can Fisher Phillips Help Your Organization Stay in Compliance?

Fisher Phillips can help with any employment law compliance issues through COVID-19, such as:

• Help companies prepare and maintain effective policies and procedures, including

remote work policies.

• Provide counsel on compliance with the WARN Act for any layoffs.
• Help navigate FLSA standards and audits.
• Address Emergency FMLA and Emergency Paid Sick Leave Act issues.
• Handle benefits issues of all kinds.

***We will continue to monitor this rapidly developing situation and provide updates as appropriate, including updating our FAQ on as-needed basis. Make sure you are subscribed to Fisher Phillips’ alert system to receive the most up-to-date information.

Paycheck Protection Program

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Paycheck Protection Program

• Accessed through a qualified SBA lender (over 1,800 banks authorized)
• Lenders are not requiring application fees, closing costs, collateral or personal guarantees
• Bank is 100% guaranteed by Small Business Administration
• Maximum interest rate of 4% and maximum term is 10 years
• First six months’ payments automatically deferred
• Maximum loan amount is lesser of 250% of average monthly payroll or $10 million
• Cannot be used on costs where a credit was received under Families First Coronavirus Response Act

(FFCRA) “No double dipping”

• In general available to businesses employing not more than 500 employees
• Exception for over 500 - Waiver of affiliation rules for any business operating as a franchise that is assigned

a franchise identifier code by SBA

• Must certify uncertainty of current economic conditions make the loan necessary to support ongoing
• perations and fund will be used to retain workers

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Paycheck Protection Program

• Used to fund rent, utilities, interest on mortgages and payroll costs; including
• Salary, commission, or similar compensation
• Limited to first $100,000 of compensation per employee
• Group health benefit (Insurance, retirement contributions, vacation, covered leave)
• Mortgage interest and other debt interest, Rent, Utilities
• Mortgages, utilities, lease, and debt must have been in place prior to February 15, 2020
• Loan may be forgiven for the amount of the above expenses paid during the eight week period starting

at the date of loan origination

• Debt forgiveness in not taxable income for federal income tax purposes
• Unforgiven amounts will be payable for a maximum of 10 years and 4% interest rate

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Paycheck Protection Program

What is the downside?

• Loss of benefits from other programs
• Cannot use Employee Retention Credit if you use this program
• Lose the ability to defer Social Security and Medicare tax payments
• Loan forgiveness reduced by reducing workforce or compensation
• Reduced by the reduction in full-time equivalent (FTE) divided by

Average FTE per month between February 15, 2019 and June 30,2019 Or, average FTE per month between January 1, 2020 and February 29, 2020 *Opportunity to re-hire by June 30, 2020 and not be penalized

• Reduced by any salary reduction greater than 25% for employees making less than $100,000

from the most recent full quarter versus the eight week period.

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Employee Retention Credit

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Employee retention credit

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• Employment tax credit equal to 50% of wages up to $10,000 of wages per employee
• Eligible for employers where:
• Business is fully or partially suspended during calendar quarter due to orders from an appropriate

government authority, or

• A business experiencing a significant decline in Gross Receipts, less than 50% in prior year same

quarter

• Ends in quarter where gross receipts are greater than 80% of gross receipts in prior year same

quarter

• Qualified Wages are:
• For employer with over 100 employees: wages for employees that are NOT working
• For employer with 100 employees or less: wages for all employees
• Does not include wages included in the Families First Coronavirus Response Act or if using the

Payroll Protection Program.

• Affiliated or controlled group may apply to the 100 employees test

Delay of Payment of Employer Payroll Taxes

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Delay of Payment of Employer Payroll Taxes

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• Deferral of employer portion of Social Security taxes beginning

March 27, 2020 through December 31, 2020

• 50% of the deferral due December 31, 2021
• Remaining 50% due December 31, 2022
• Employer not eligible if have debt forgiveness under the Payroll

Protection Program

Tax Provisions in the CARES Act

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Key Tax Provisions in the CARES Act

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163(J) INTEREST LIMITATION CHANGES FOR 2019 AND 2020

• 30% threshold changed to 50% of adjusted taxable income for 2019 and 2020 tax years
• Special rules for partnerships: Partnerships remain subject to the 30% limitation. Partners that

are allocated excess business interest expense for tax years beginning in 2019 are able to deduct 50% of the excess interest in 2020, and the remaining 50% is subject to the normal rules.

• All taxpayers may elect to use 2019 adjusted taxable income to compute their interest limitation
• n their 2020 tax return.
• Before filing your 2019 tax return, understand the additional benefit of the change. This could

increase a dealership’s ability to take bonus depreciation.

Key Tax Provisions in the CARES Act

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QUALIFIED IMPROVEMENT PROPERTY TECHNICAL CORRECTION

• Error in drafting the Tax Cuts and Jobs Act made qualified improvement property (QIP) not

eligible for bonus depreciation.

• Technical correction makes QIP 15-year property, eligible for bonus depreciation.
• QIP is any improvement made by the taxpayer to the interior portion of nonresidential real

property after the building was first placed in service, excluding improvements to enlarge the building, any elevator or escalator, or the internal structural framework of the building.

• The fix is retroactive back to 2018 - Review your depreciation schedules for opportunities to

maximize deductions now.

Key Tax Provisions in the CARES Act

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NET OPERATING LOSS AND EXCESS BUSINESS LOSS CHANGES

• Net operating losses originated in 2018, 2019, and 2020 can be carried back for 5 years.
• Removes 80% of taxable income limitation to allow net operating losses to fully offset other

taxable income until 2021.

• Postpones the excess business loss rules for individual tax years to 2021. Change is

retroactive to 2018, which provides the opportunity to amend 2018 if business losses were limited.

Key Tax Provisions in the CARES Act

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RECOVERY REBATE

• One-time refundable tax credit for individuals.
• $1,200 for single taxpayers, $2,400 for joint taxpayers, and $500 for each qualifying

child

• Phase-out beginning at $75,000 AGI for single taxpayers, $150,000 for joint taxpayers.

Fully phased out at $99,000 and $198,000 respectively.

Key Tax Provisions in the CARES Act

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RETIREMENT PLAN CHANGES

• Waiver of 10% penalty on COVID-19 related early distributions from IRAs, 401(k)s,

and certain other retirement plans. Applicable for distributions up to $100,000 taken during 2020.

• Eligible distributions may be repaid within three years, and any income from the

distribution can recognized over-three years.

• Waiver of required minimum distribution rules for 2020

SBA Economic Injury Disaster Loans

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Small Business Loans (Not Paycheck Protection)

Economic Injury Disaster Loans available to businesses in all states

• Small Business Definition: Based on the industry of the businesses, based on revenue and/ or

number of employees. If in doubt apply.

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• Up to $2 million to help meet financial obligations and operating expenses – loan amount will be based on your

actual economic injury and needs

• Interest rate 3.75%
• Term not to exceed 30 years and depends on your ability to repay the loan
• One year deferment of payments, however interest will accrue
• Only available to businesses where SBA determine they are unable to obtain credit elsewhere
• https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

Compliance Filing Changes

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• Federal Income Tax Filing Deadline moved from

April 15th to July 15th for: all C Corporations, Individuals and Trusts

• Recently included gift tax returns
• All Federal Income Tax Payments typically due

April 15th moved to July 15th – included 1st quarter estimated tax payments

Federal Income Tax

State Income Tax Changes

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Many states are making changes to their filing and payment deadlines to align with the Federal changes For continued updates to state filings visit: https:/ / www.aicpa.org/ content/ dam/ aicpa/ advocacy/ tax/ do wnloadabledocuments/ coronavirus-state-filing-relief.pdf Your state may also be making changes and providing relief for the filing and payment of local taxes like Business & Occupation or Sales Tax

Reinsurance IRS Notices

Many dealers received notices from the IRS this week related to their participation in micro-captives (certain reinsurance structures)

The language of the notice:

Why we're writing to you We have information that you've taken a deduction or other tax benefit related to micro-captive insurance on a prior year tax return and disclosed pursuant to Notice 2016-66 and Notice 2017-08. Several recent U.S. Tax Court decisions have confirmed that certain micro-captive arrangements are not eligible for claimed Federal tax benefits. We're notifying you regarding IRS compliance activity in this area so you can make informed decisions about claiming tax deductions for micro-captive insurance premiums. The IRS is increasing enforcement activity in this area and has deployed several examination teams to open additional examinations of returns that included micro-captive insurance

• transactions. Examinations may result in full disallowance of claimed micro-captive insurance deductions, inclusion of income by

the captive entity, and imposition of applicable penalties.

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Key Takeaways

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• Prepare for the worst and hope for the best
• Seek information and take advantage of resources
• Don’t expect a quick bounce back
• Maximize 2019 tax deductions now
• Establish a team in your organization to address this
• Moss Adams, Fisher & Phillips, AIADA, NADA and State

Associations are here to help

Questions?

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Kelsey Sjoberg, CPA

(4 25) 551-570 3 kelsey.sjoberg@m ossadam s.com

Sarah McKnight, CPA

(4 25) 551-570 6 sarah.m cknight@m ossadam s.com

Dan Cheyney, CPA

(4 25) 30 3-318 8 dan.cheyney@m ossadam s.com

Sam antha Monsees

(8 16 ) 4 6 0 -1238 sm onsees@fisherphillips.com

Karl Lindegren

(9 4 9 ) 8 51-24 24 klindegren@fisherphillips.com