Newsletter from
Steve Richardson & Company, Certified Public Accountants
March 30, 2020
To Our Clients and Friends:
As promised, I’m reading as fast as I can. This letter deals with the business tax relief measures in the Coronavirus Aid, Relief, and Economic Security Act.
Employee retention credit for employers
A major concern of congress is the prospect of massive layoffs related to the coronavirus response. Congress has been generous!
This is the heart of the bill. This is how congress intends to accomplish its will to assist American small businesses. The rest of the law is nice but mostly window dressing.
This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis.
That needs repeating, “Half of employee’s wages can be paid by the US government with tax credits.”
BUT: If you take the SBA Loan that allows for a potential forgiveness, this credit is unavailable! (The Small Business Interruption Loans under Sec. 1102 of the Act.)
Eligible employers
The credit is available to employers, including non-profits (Churches), whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.
There are exceptions!
The credit is not available to employers receiving Small Business Interruption Loans under Sec. 1102 of the Act.
Wages paid to which employees?
100 or fewer employees
For employers who had an average number of full-time employees in 2019 of 100 or fewer, all employee wages are eligible, regardless of whether the employee is furloughed.
More than 100 employees
For employers who had a larger average number of full-time employees in 2019, only the wages of employees who are furloughed or face reduced hours as a result of their employers’ closure or reduced gross receipts are eligible for the credit.
There is a wage-cap
The term “wages” includes health benefits and is capped at the first $10,000 in wages paid by the employer to an eligible employee.
$10,000 in wage credits may not be enough to accomplish congressional goals.
So far – so good
Delay of payment of employer payroll taxes
Oops; this is not so good. Falling behind in payroll taxes is a sure recipe for disaster! I strongly advise that all payroll taxes be paid when due.
Repeal of taxable income limitation for net operating losses (NOLs)
This is a ‘temporary’ repeal. The point of this law is to make the net operating losses carry-backs more valuable. I like this law. If you lose money in 2020, you can take that loss as a tax deduction on an amended 2018 tax return. Good.
Deductibility of interest expense temporarily increased
The value of interest expense deductions is, ‘temporarily’ increased. Not bad but do not incur a lot of debt for the deduction. The interest and the debt will do far more harm than good in the long run.
The Payroll Credit
The 50% payroll tax credit is the heart of this tax bill. Let’s hope it is enough.
Sincerely,
Steve Richardson, CPA
