Tax implications of COVID-19 stimulus

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(Second of two parts)

Roman Basi

In the first installment of this column, I provided an overview of the main components of the recent $2 trillion stimulus package signed into law to provide economic relief in the wake of the COVID-19 pandemic (FCNews, March 30/April 6). This segment will cover other measures of the law, including tax credits for business owners.

From a retirement standpoint, the bill would allow for tax-favored “coronavirus-related” distributions from certain retirement plans of up to $100,000 (the 10% early withdrawal penalty would not apply). Also, income attributable to those distributions would be subject to tax over three years—as opposed to one year. Qualifying taxpayers would also be allowed to repay their retirement plans to make up for money withdrawn to pay coronavirus-related expenses, including loans and distributions. The proposal would also waive required minimum distributions for 2020.

From a small business standpoint, the bill expands eligibility for small businesses (those under 500 employees) to receive a loan of up to $10 million under the Small Business Act. The loans can be used for payroll as well as paid sick, medical or family leave, costs related to the continuation of group health care benefits, mortgage payments and rent, utilities and other debts. The loans could also be extended to sole proprietors, independent contractors and self-employed persons. No collateral would be required, nor any personal guarantee, and the loans are eligible for forgiveness if they meet specific criteria. The bill provides unemployment benefits for workers who are out of work—a temporary Pandemic Unemployment Assistance program provides benefits for those not traditionally eligible for unemployment benefits, including self-employed workers and independent contractors.

The stimulus package also calls for another tax credit for employers who hold onto employees during the pandemic. The 50% credit would offset the employer’s share of Social Security taxes up to $10,000 of qualified wages per employee. For employers with more than 100 full-time employees, qualified wages are wages paid when they are not providing services due to COVID-19. For eligible employers with fewer than 100 full-time employees, all employee wages qualify for the credit. Additionally, the IRS and Department of Treasury also announced two new refundable payroll tax credits. For eligible employers, the credits establish the refundable paid sick leave credit and paid childcare leave credit. The credits are meant for companies with less than 500 employees. Workers can get as many as 80 hours of paid sick leave as well as expanded paid childcare leave when their children’s schools are closed or childcare providers are unavailable.

Under guidance to be released in the future, qualifying businesses that pay sick or childcare leave under the new law will be able to keep the same amount in payroll taxes as the leave they paid. This will allow companies to get up to $511 per day for a total of 10 days for each employee under the paid sick leave credit. For the family and medical leave credit, companies can get up to $200 per day for up to 10 days for employees who take such time away from their job. Eligible employers can also receive a refundable childcare leave credit up to $200 per day for as long as 10 weeks. Businesses can claim the credits based on the qualifying leave provided between the effective date and the last day of this year. Self-employed individuals under similar circumstances qualify for equivalent credits. The IRS expects to process the tax credit claims within two weeks or less.

The professionals at The Center for Financial, Legal and Tax Planning are focusing on keeping taxpayers informed with the most up-to-date information with regards to coronavirus stimulus. Call 618.997.3436 for questions or guidance or visit taxplanning.com.

Roman Basi is an attorney and CPA with the firm Basi, Basi & Associates at the Center for Financial, Legal & Tax Planning. He writes frequently on issues facing business owners.

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