Congress established multiple programs to assist individuals, families, businesses, medical providers, and others in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Paycheck Protection Program (PPP) provides loans to small businesses to cover certain operating expenses. The portion of a PPP loan used to pay covered expenses is fully forgivable, with no resulting tax liability. This created uncertainty, however, with regard to whether those same expenses are considered tax-deductible. IRS Notice 2020-32 resolves this uncertainty. Businesses receiving PPP loan forgiveness may not deduct expenses covered by this provision of the CARES Act, and if a business claims those expenses as deductions, they may not be eligible for loan forgiveness.

What Is a PPP Loan?

The PPP appears near the beginning of the CARES Act, in § 1102. The program provides loans to small businesses to cover payroll expenses, rent and mortgage payments, utilities, and other costs needed to keep the business running for the period from February 15 to June 30, 2020. The primary purpose of these loans, as indicated by the name of the program, is to enable businesses affected by the COVID-19 pandemic to keep their employees paid.

When Can a PPP Loan Be Forgiven?

Under § 1106(b) of the CARES Act, businesses may obtain forgiveness of all or a portion of the loan. The forgivable amount is equal to the total spent during the “covered period,” an eight-week period beginning on the loan origination date, for expenses directly related to payroll, rent, utilities, and mortgage payments. The forgivable amount is reduced if the business lays off employees or cuts wages.

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Almost anyone who has started a new job in the U.S. has filled out Form W-4, which tells employers how much money to withhold from paychecks for federal income tax. At the end of 2019, the IRS made significant changes to the form. While the revised form calls for more information from employees, it presents it in a way that may prove easier to understand and fill out. Here is what employees and employers should know about the new Form W-4.

What Is Form W-4?

“Withholding” generally refers to amounts deducted from employees’ gross wages for federal income tax. The amount of tax an employee will owe depends on multiple factors, including whether the employee will file singly or jointly, the number — if any — of dependents they have, and the amount of deductions they anticipate having. Employees use Form W-4 to notify the employer how much withholding to take from their paychecks.

What Is Different About the New W-4 Design?

If one were to compare the layout of the 2020 W-4 to the 2019 form, the first difference they might notice is the simpler layout of the new form. Instead of instructions packed tightly onto the first page in a tiny font, the new form begins with the fields that employees must complete. The instructions begin on the second page.

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The Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides loans to eligible businesses to cover payroll and certain other expenses. The U.S. Small Business Administration (SBA) guarantees the loans, and a portion of each loan is forgivable. While the CARES Act specifies that forgiven loan amounts are not included in a business’ taxable income, it does not address whether the expenses paid by the forgiven loan are tax-deductible. The IRS has announced that businesses receiving PPP loan forgiveness cannot deduct these expenses.

What is the Paycheck Protection Program?

Section 1102(a) of the CARES Act amends § 7(a) of the Small Business (SB) Act, codified at 15 U.S.C. § 636(a), to establish the PPP. Eligible businesses may receive loans of up to $10 million from the SBA. The purpose of these loans is to allow businesses to maintain workers on payroll and cover other expenses from February 15 to June 30, 2020. The CARES Act caps interest rates for these loans at four percent, and defers all payments for six months to one year.

What Expenses Can Businesses Pay with PPP Loans?

The SB Act, as amended, defines “allowable uses of covered loans” to include:
– Payroll expenses, salaries, commissions, and other compensation to employees;
– Continuation of employee benefits;
– Rent and utilities; and
– Interest on mortgages and other debt incurred prior to February 15, 2020.

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Businesses across the country are struggling because of the economic downturn associated with the coronavirus pandemic. Congress has provided a variety of economic stimuli, including the Employee Retention Credit (ERC). This is a payroll tax credit found in § 2301 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act is the largest stimulus package in the nation’s history, providing around $2 trillion in direct payments, loans, grants, and tax credits.

What Is the Employee Retention Credit?

The ERC is a fully-refundable payroll tax credit that gives businesses affected by the pandemic an incentive to keep employees on their payroll. The credit applies to the employer’s share of the Social Security portion of payroll taxes under the Federal Insurance Contributions Act (FICA).

What Businesses Are Eligible for the Employee Retention Credit?

The ERC is available to most businesses that meet the CARES Act’s criteria regarding economic impact from the coronavirus.
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Congress has passed two major pieces of legislation intended to stimulate the economy and provide direct support to businesses, their employees, and others hurt by the economic effects of the fight against the coronavirus and COVID-19. Many benefits take the form of refundable payroll tax credits for employers. The IRS is waiving certain penalties related to payroll taxes, and allowing employers to request advance payment of refunds under these new laws.

Payroll Tax Credits

Paid Sick Leave and Family Leave

The Families First Coronavirus Response Act (FFCRA) creates temporary systems for paid sick leave, paid family leave, and expanded unpaid family leave. Employers with fewer than five hundred employees are subject to these provisions, although employers with fewer than fifty employees may request a waiver.

The amount of leave and rate of pay depends on the purpose of the leave. Paid leave for one’s own diagnosis or quarantine is capped at $511 per day. Paid leave to care for a sick or quarantined family member or a child out of school is capped at $200 per day.

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If you are employed, your boss probably pays many of your taxes for you. Your pay stubs will show withholding for federal income tax, Medicare, and FICA. At the end of the year, you will receive a W-2 showing your total earnings from your job and the total amount of taxes withheld. Self-employed people must also pay these taxes, and they have to handle all of the details themselves. To understand whether you have to pay the self-employment tax, you need to determine whether you are “self-employed” for federal tax purposes, and whether you make enough from self-employment to need to pay the tax. Our Los Angeles tax advisors can help you assess these factors.

What Is the Self-Employment Tax?

It might be easiest to define the self-employment tax by comparing it to the taxes paid by employed persons. A typical employee has two types of tax withheld from their paychecks. The first is their individual federal income tax withholding. The amount that their employer withholds from each paycheck is based on the information they provided on Form W-4.

The other type of tax, commonly known as “payroll tax,” goes towards Social Security and Medicare. The Social Security portion is often known as the FICA tax, after the Federal Insurance Contributions Act. The employer withholds the following percentages of the employee’s gross wages:
– 6.2% for Social Security; and
– 1.45% for Medicare
The employer must match these amounts. While the employee pays 7.65 percent of their paycheck, the total amount received by the government equals 15.3 percent.

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Congress passed the largest economic stimulus bill in the nation’s history in March 2020 to address problems caused by the global coronavirus pandemic. Its provisions include a waiver of the rule requiring employees to take a minimum distribution from certain types of retirement accounts by a date after they attain a particular age or when they retire, whichever is later. In 2019, Congress amended the Internal Revenue Code (IRC) to change the age after which a person must take a required minimum distribution (RMD) from 70½ to 72. People who turned 70½ in 2019 were not covered by the new law, however, which created some confusion. The coronavirus stimulus bill alleviates this confusion by waiving all RMDs during 2020.

Required Minimum Distributions Before 2020

Section 401(a)(9) of the IRC requires employees with individual retirement accounts (IRAs) and certain other types of retirement accounts to take an RMD by a “required beginning date,” defined as April 1 of the year following whichever occurs later:
– The person “attains age 70½”; or
– The person retires.

The use of a “half birthday” caused some confusion for people, since anyone born more than halfway through a calendar year would not turn 70½ until the following calendar year. For example, a person who turned 70 in June 2010 would turn 70½ in December 2010. Their RMD date would be April 1, 2011. A person who turned 70 in July 2010, however, would turn 70½ in January 2011. Their RMD date would be the following year, on April 1, 2012.

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The IRS recently began sending stimulus payments authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. These payments, which are technically tax rebates, can be up to $1,200 for individuals or $2,400 for married couples, with some exceptions. To assist individuals and families who have not received their payment yet, the IRS launched an online tool that allows people to check on their status. It is reportedly similar to the tool used to track tax refunds. The IRS has also issued a warning about possible financial scams targeting these payments.

Coronavirus Stimulus Payments

Section 2201 of the CARES Act establishes “2020 recovery rebates for individuals.” These are more commonly known as stimulus payments. The IRS sometimes refers to them as Economic Impact Payments. The “payments” are a credit against future federal income taxes, but since the CARES Act makes them refundable, the IRS is sending payments to individuals and families.

The maximum amount of $1,200 is available to any individual whose 2018 or 2019 federal income tax return shows adjusted gross income (AGI) of $75,000 or less. For married couples who filed a joint return, the maximum payment of $2,400 is available to anyone with AGI of no more than $150,000. Additionally, households with minor dependent children receive $500 per child.

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