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Monitor Overtime Pay for Your Remote Workers

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Paying your employees for hours that you know they’ve worked is straightforward enough. But what if they’re doing more work than you think they are — or more than you’ve asked them to do? As federal regulations state, “Work not requested but suffered or permitted is work time” and, thus, must be compensated.

As explained in a new Department of Labor (DOL) field assistance bulletin (FAB), “If the employer knows or has reason to believe that the work is being performed, he must count the time as hours worked.” The rub, the FAB explains, is this:

“While it may be easy to define what an employer actually knows, it may not always be clear when an employer ‘has reason to believe that work is being performed,’ particularly when employees telework or otherwise work remotely at locations that the employer does not control or monitor.”

CLICK BUTTON – FAB: Employers’ obligation to exercise reasonable diligence in tracking teleworking employees’ hours of work

You Should’ve Known

Generally, the onus is on you to keep employees from performing more work than you want them to and are paying them to perform — whether it’s to prevent you from having to pay overtime rates or more regular time hours than you’ve budgeted. According to the FAB, “employers bear the burden of preventing work when it’s not desired,” and “the mere promulgation of a rule against such work is not enough.”

“Management has the power to enforce the [work hours limit] rule and must make every effort to do so,” it states. And yet courts have been clear that there are limits to the meaning of “make every effort.” In one case, a federal court ruled that the key is whether an employer’s inquiry about employees’ work activities are reasonable “in light of the circumstances surrounding the employer’s business, including existing overtime policies and requirements.” The bottom line, though, is that you need to make a genuine effort to know how many hours your employees are working, whether they’re operating from their homes or at your regular worksite.

Recordkeeping

It’s important to have a good timekeeping system that requires hourly employees to use if they want to be paid for all of the time they work. Your system should make it obvious to you if employees start to log enough hours to qualify for overtime pay. That enables you to take steps to ensure that workers don’t, or don’t continue to, log hours that must be paid at time-and-a-half.

The DOL’s new guidance is particularly concerned with salaried non-exempt employees. The simplest approach to managing workers’ hours, the FAB suggests, is to provide “a reporting procedure for non-scheduled time” and paying employees accordingly, even if you didn’t ask them to work those extra hours. (You might also then have a discussion with the employees, laying out your expectations about how many hours they should spend on various elements of their jobs.)

With such a reporting system in place, if employees fail to report unscheduled hours through the established procedure, what is your responsibility? “The employer is not required to undergo impractical efforts to investigate further to uncover unreported hours of work and provide compensation for those hours,” states the FAB.

Practicality Standard

What’s impractical? While you might have access to data indicating when employees are accessing their work computers, you don’t have to sort through this information to determine whether employees worked longer hours than they’ve reported.

The FAB’s conclusion is supported by a federal appeals court ruling involving Chicago policemen who sued the city for overtime pay. The plaintiffs argued that the police department should have monitored officers’ cell phone logs to determine whether they were working overtime. The Court of Appeals ruled that the City of Chicago lacked either actual or constructive knowledge that members of the Chicago Police Department were performing after-hours work on their smartphones—affirming a trial court’s earlier ruling that the City was not liable for this work under the Fair Labor Standards Act.

However, if employees are in any way discouraged from reporting work they performed that was beyond what was scheduled, employers are on the hook for paying overtime. The most brazen form of discouragement would be explicit, such as threatening the worker’s job future for reporting overtime hours worked. But the FAB cites another form of discouragement that could be inadvertent: establishing a system for employees to report overtime hours but neglecting to properly instruct employees on how to use that system.

The Bottom Line

The practical implication of the guidance provided in the FAB is that if you don’t currently have a system in place for nonexempt salaried employees to report overtime work, you should establish one. Then train your employees — whether working remotely or not — on how to use it. 

Reynolds + Rowella’s HR Consulting team is here to help you identify the right reporting system for your organization and develop training guides to ensure compliance with your team. Please reach out to Katie Hall for assistance.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, CT and 51 Locust Ave., New Canaan, CT

For more information, give us a call at 203.438.0161 or email us.

5 Key Points about Bonus Depreciation

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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; 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.

For 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 reach out to your R+R financial professional or complete the contact us form if you have any questions about how to proceed in your situation.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

3 Steps to Increase the Likelihood of Your PPP Loan Forgiveness

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With the forgiveness process now open, accountants, tax professionals and auditors are working around the clock to submit forgiveness applications on behalf of their clients. Without forgiveness, millions of businesses will be saddled with debt they cannot afford and otherwise likely would not have borrowed. The impact of mass non-forgiveness will likely be another major obstacle to economic recovery. Thus, the pressure is on lenders and the Small Business Administration to forgive as many of the loans as legally possible.

There are several steps that you can take to increase the likelihood of Payment Protection Program PPP loan forgiveness:

1. Be thorough. Submit a PPP loan forgiveness application that is clear and contains all the supporting information. Accountants should outline the basis for their calculations. Remember, temporary employees not experienced in financial reviews will be considering many of these applications on behalf of lenders and the SBA.

2. Be conservative. Remember, recent guidance has allowed more flexibility on the timeframe to spend the loan. If using a shorter time frame makes your calculations too close for comfort, extend your review period. For example, rather than use a questionable utility expense, just include one additional payroll for qualifying employees.

3. Be educated. After reviewing the guidance provided by the SBA, go over it in detail with your tax professional. Each business is unique and benefits from different parts of the guidance. It is cumbersome and complex, but knowing the rules will make completing the forgiveness application process much smoother.

Read More: PPP LOAN FORGIVNESS

What’s Next:

We understand the PPP loan forgiveness process can be intimidating but you are not alone, and we are here to help! If you have any questions or if we can be of assistance in calculating your forgivable PPP loan and forgiveness application, please reach out to your R+R financial professional or complete the contact us form.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

New Guidance Issued on President Trump’s Payroll Deferral Executive Order

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By Pat Butler

On August 8, 2020, President Trump signed an executive memorandum directing the U.S. Department of the Treasury to defer certain payroll tax obligations amid the ongoing COVID-19 pandemic.

On August 28, 2020, the IRS published Notice 2020-65 (Notice) allowing employers to defer withholding the employee portion of Social Security tax from paychecks. This payroll tax deferral is different from the one provided for under the Coronavirus Aid, Relief and Economic Security Act.  

The Notice is directed at employers, which are termed “Affected Taxpayers” in the Notice. The Notice concerns the withholding and payment of “Applicable Wages,” which is defined to mean wages and compensation paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020; however, this is limited to wages or compensation paid for a bi-weekly period that is less than $4,000. Furthermore, that determination is made in each pay period; therefore, it is possible for an employee’s wages or compensation to meet this requirement in some pay periods but not others. In other words, failure to satisfy this requirement does not mean the employee is barred from this deferral for all or subsequent pay periods.

The Department of Treasury and Internal Revenue Service Guidance

Deferral under the Notice is optional. Any tax deferred under the Notice is required to be collected and paid between January 1, 2021, and April 30, 2021. Employers that fail to pay any outstanding amounts by May 1, 2021, may be held liable for the tax, penalties, and interest. The Notice indicates the Affected Taxpayer may “make arrangements to otherwise collect” the deferred taxes from the employee.

The Notice leaves many unanswered questions, such as whether an Affected Taxpayer must make this available if a particular employee qualifies, and what an Affected Taxpayer might do in the event an employee is no longer employed by the Affected Taxpayer before the deferred taxes are remitted to the government. R+R will be monitoring any additional developments concerning this payroll tax deferral and will share further information as additional guidance is released. For questions, please reach out to your R+R Tax Advisor or complete the Contact Us form.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, CT and 51 Locust Ave., New Canaan, CT

For more information, give us a call at 203.438.0161 or email us.

The COVID-19 crisis

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The COVID-19 crisis has taken a toll on many small businesses. But some winners are expected to emerge from the wreckage. Unprecedented steps will be taken to guard against health risks from COVID-19 and whatever might come along next. The new normal will create new opportunities—small businesses that can respond to those opportunities will survive and thrive.

Operating as a tax-favored qualified small business corporation (QSBC) can be a smart move for eligible small businesses.

Tax Basics

QSBCs are a special breed of the C corporation species. The difference between QSBCs and garden-variety C corporations is that QSBC stock is potentially eligible for:

  • A 100% federal income tax gain exclusion break, and
  • A tax-free gain rollover break.

The 100% gain exclusion break translates into a 0% federal income tax rate on capital gains from eligible sales of QSBC stock. You also benefit from the flat 21% federal income tax rate that C corporations pay, thanks to the Tax Cuts and Jobs Act (TCJA).

The gain exclusion and gain rollover breaks are available to individual taxpayers who own QSBC stock. However, these breaks aren’t available to QSBC shareholders that are themselves C corporations. Gains from sales of QSBC stock that individuals own indirectly through “pass-through” entities (partnerships, limited liability companies (LLCs), and S corporations) are eligible, because the gain exclusion and gain rollover breaks are effectively passed through to individual owners.

The current 100% gain exclusion deal was made permanent for sales of QSBC shares that are acquired after September 27, 2010. However, several rules and restrictions apply—notably, you must hold the stock for more than five years to claim the gain exclusion.

Assuming your business is eligible for QSBC status, the following types of businesses will first need to be incorporated:

  • Sole proprietorships,
  • Single-member LLCs treated as sole proprietorships for tax purposes,
  • Partnerships, and
  • Multi-member LLCs treated as partnerships for tax purposes.

In general, QSBCs are treated the same as regular C corporations for all other legal and federal tax purposes—beyond the federal income tax gain exclusion and gain rollover breaks, the standard advantages and disadvantages of C corporation status apply equally to QSBCs.

Limitations on Excludable Gains

Congress imposed limits on the amount of gain that can be excluded from selling shares in a particular QSBC. For purposes of this article, we’ll refer to the amount of gain that qualifies for the gain exclusion break as the “eligible gain.” In any taxable year, a taxpayer’s eligible gain is limited to the greater of:

  • 10 times the taxpayer’s basis in the QSBC stock that’s sold, or
  • $10 million reduced by the amount of eligible gain already taken into account in prior tax years for dispositions of stock issued by the same QSBC (or $5 million if the taxpayer uses married filing separate status).

In effect, the $10 million (or $5 million) eligible gain limitation is a lifetime limitation for stock in a particular QSBC.

For example, Jo is unmarried. In 2026, she sells QSBC stock that she acquired in 2020. The stock has basis of $2 million. Jo sells the stock for $24 million, resulting in a gain of $22 million. She has never before excluded any gain from selling shares in this QSBC. Her eligible gain is limited to the greater of:

  • $20 million (10 × $2 million basis of the stock), or
  • $10 million reduced by eligible gains taken into account in prior tax years (if any).

In this case, Jo’s eligible gain limitation is $20 million, because that’s the greater of the two limitations. The remaining $2 million of gain is taxed as a garden-variety long-term capital gain that’s potentially subject to the 3.8% net investment income tax (NIIT) on top of the capital gains tax.

Gain Rollover Privilege

There’s also a tax-free gain rollover privilege for eligible QSBC shares. This privilege applies to gains recognized by an individual taxpayer, if the taxpayer elects gain rollover treatment.

Under the rollover rule, the amount of gain recognized is limited to the excess of QSBC stock sales proceeds over the amount reinvested to purchase other QSBC shares (replacement stock) during a 60-day period beginning on the date of the original sale. The rolled-over gain reduces the basis of the replacement stock. QSBC stock must have been held for more than six months to take advantage of gain rollover provision.

If the replacement stock is still QSBC stock when it’s sold, the gain exclusion break is available if the more-than-five-year holding period requirement is met. The holding period of the stock sold in the rollover transaction is added to the holding period of the replacement stock.

Important: The rollover provision allows a QSBC shareholder to sell shares on a tax-deferred basis without losing eligibility for the gain exclusion break when the replacement stock is eventually sold.

Right for Your Business?

You may think that conventional wisdom dictates that it’s best to operate privately owned businesses as pass-through entities. But that may not be the optimal choice if your venture would meet the definition of a QSBC if it was incorporated. The QSBC alternative offers three major upsides: 1) the potential for the 100% gain exclusion break when you sell your shares, 2) a tax-free stock sale gain rollover privilege, and 3) a flat 21% corporate federal income tax rate. A Reynolds + Rowella tax advisor can help you assess whether QSBC status is right for your business venture under the current tax rules. Contact us today.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

The Second Half of 2020

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The second half of 2020 has begun. What steps can small business owners take today to lower taxes for the current tax year? Alternatively, would it make more sense to maximize taxable income this year if you expect higher income and/or unfavorable changes to the tax law starting in 2021?

Uncertain Times

These are tough questions given today’s volatile environment. Many businesses have suffered losses due to the COVID-19 crisis. Some have been forced to lay off or furlough employees — or otherwise cut salaries, benefits, travel and other operating expenses. New health and safety protocols have altered business models and caused businesses to spend money to comply with reopening guidelines. As a result, many businesses are projecting significant losses for 2020. Fortunately, the Coronavirus Aid, Relief and Economic Security (CARES) Act has provided various relief measures for small businesses.

To further complicate matters, it’s a presidential election year, and the race is highly contentious. Depending on the outcome of the November elections, today’s tax laws and government regulations may change for 2021 and beyond.

With all that in mind, here are five mid-year tax planning suggestions for small business owners to consider for 2020.

1. Pay Taxes Due

The normal deadlines for corporations, owners of pass-through businesses and self-employed individuals to pay estimated taxes for the first two quarters of 2020 are April 15 and June 15, respectively. This year, the IRS extended both deadlines until July 15. If you haven’t already paid what you or your business will owe for the first and second quarter, now is the time.

The IRS hasn’t extended the due dates for paying estimated taxes for the third quarter. Unless that changes, calendar-year taxpayers must pay those amounts by September 15 to avoid penalty and interest charges. Evaluate whether you or your business will have enough cash on hand to meet the third quarter deadline after paying first and second quarter estimates. Owners of pass-through entities might need to take a distribution from their businesses to cover their estimated payments for the third quarter.

2. Keep or Rehire Workers

Under the CARES Act, your business can claim a payroll tax credit equal to 50% of the qualified wages paid to employees after March 12, 2020, and before January 1, 2021. To qualify for the credit, you meet either of these two requirements:

  1. The business fully or partially suspended operations during any calendar quarter due to the COVID-19 pandemic.
  2. The business experienced a significant decline in gross receipts. A “significant decline” occurs if gross receipts are less than 50% of the gross receipts for the same calendar quarter in 2019.
3. Delay Paying Payroll Taxes

If your business is struggling, it can postpone paying part of its payroll tax obligations for two years. Generally, the next quarterly due date for payroll taxes for corporations is November 2nd. However, under the CARES Act, your business can defer the 6.2% Social Security tax component of payroll taxes for the period between March 27, 2020, and December 31, 2020.

Under this provision, a business may pay 50% of the required Social Security tax by the end of 2021, and the remaining 50% by the end of 2022. Similarly, self-employed individuals can defer 50% of part of their self-employment tax by paying 25% of the amount due by the end of 2021, and the remaining 25% by the end of 2022.

4. Take Advantage of Bonus Depreciation on QIP

Many small businesses have and will reconfigure offices, plants and warehouses to comply with COVID-19 social distancing and safety guidelines. These investments can be costly. Fortunately, the CARES Act includes a retroactive correction to the statutory language of the Tax Cuts and Jobs Act (TCJA). The correction allows much faster depreciation for real estate qualified improvement property (QIP) that’s placed in service after the TCJA became law.

Specifically, the correction allows 100% first-year bonus depreciation for QIP that’s placed in service in 2018 through 2022. That’s because QIP placed in service after 2017 is now eligible for a 15-year cost recovery period instead of a 39-year cost recovery period.

Some businesses that used a 39-year recovery period for QIP may instead opt to depreciate QIP over 15 years rather than claiming 100% first-year bonus depreciation. This could be a smart move if, for example, you expect tax rates to be higher in the future or if your business operates as a pass-through entity  and taking 100% bonus depreciation will cause you to miss out or reduce the deduction for qualified business income (QBI). A R+R tax advisor can advise you about the pros and cons of claiming bonus depreciation vs. depreciating QIP over 15 years.

5. File an Amended Federal Income Tax Return

The CARES Act now includes several provisions that can provide retroactive tax benefits for small business owners. These provisions could make it worthwhile to file an amended return for 2018 or 2019.

For example, previously, a business could carry back a NOL for two years and forward for up to 20 years. Beginning in 2018, the two-year carryback rule was eliminated, but losses could be carried forward indefinitely. In addition, NOLs are generally limited to 80% of business income under this tax law change.

The CARES Act provides a five-year carryback for NOLs incurred in 2018, 2019 or 2020. It also suspends the 80%-of-business-income limit on NOLs until 2021.

In addition, you might decide to file an amended return to take advantage of the QIP technical correction for improvements made in 2018 and 2019. Regardless of whether you choose bonus depreciation or the 15-year straight-line depreciation method, your options under the CARES Act are better than they were before the correction. And bonus depreciation deductions can also be used to create or increase an NOL for 2020.

BRAVE NEW WORLD IN TAX PLANNING
Tax planning is especially complicated this year. This article covers just the tip of the iceberg for small businesses. Contact a R+R tax advisor to discuss mid-year planning strategies to determine the right course of action based on your current situation.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

National Taxpayer Advocate report to Congress identifying taxpayer challenges

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The National Taxpayer Advocate Erin M. Collins released her first report discussing some of the difficulties confronting taxpayers and the IRS during the COVID-19 pandemic, which has only exacerbated problems with taxpayer service as the IRS struggled to implement the provisions of the CARES Act and the Taxpayer First Act.

Although the report praises the IRS for acting quickly to postpone over 300 filing, payment, and other time-sensitive deadlines, provide broad relief from compliance actions under its “People First Initiative,” a7nd disburse some 160 million Economic Impact Payments (EIPs) authorized by the CARES Act, there have been notable adverse taxpayer impacts, including:

Taxpayer Challenges Arising from COVID-19 Pandemic
  • Taxpayers who filed a 2019 paper return and are entitled to refunds may be in for a long wait. The IRS had to suspend the processing of paper tax returns, and as of May 16, it estimated it had a backlog of 4.7 million paper returns. Although the IRS is reopening some of its core operations, it is not clear when it can open and process all the returns sitting in mail facilities.
  • Some taxpayers whose returns were mistakenly flagged by IRS processing filters are experiencing lengthy delays in receiving their refunds.
  • The IRS shut down its Accounts Management telephone lines, so taxpayers could not reach a live assistor by telephone, as well as its Taxpayer Assistance Centers, making it impossible for taxpayers to obtain in-person assistance. The IRS also shut down its mail facilities, so it was unable to log or process taxpayer responses to compliance notices.
  • IRS systems prepared over 20 million notices during the pandemic that could not be mailed due to closure of notice production centers between April 8 and May 31. The IRS is mailing these notices now. However, some collection notices bear old dates and include response deadlines that often have passed. The IRS plans to include “inserts” with these notices explaining that response deadlines have been postponed.
Taxpayer Challenges Relating to the CARES Act
  • Individuals who did not receive some or all of their EIPs may have to wait until next year to receive them. To date, the IRS has taken the position that most taxpayers who did not receive their full payments must wait until they file their 2020 income tax returns to claim the amounts as credits against their 2020 tax liabilities, even though there is no legal constraint on the IRS’s ability to issue additional EIP amounts as advance refunds during 2020.
  • Employers are struggling to determine whether they qualify for the Employee Retention Credit (ERC) and in what amounts. The ERC is a complex, refundable tax credit that requires employers to determine when a trade or business was fully or partially suspended by government order; the employer’s number of full-time employees; what constitutes qualified wages; whether a business’s operations post-COVID-19 are comparable to its pre-COVID-19 operations; and the application of aggregation rules.
  • Businesses are facing challenges when seeking to utilize the CARES Act provision that authorizes the use of net operating losses to offset taxable income in prior years (and in some cases to receive refunds).

Visit IRS.gov Where’s my Refund to check status of your filed return

While the IRS has begun reopening its operations, it will take some time before they are restored to full capacity. We encourage you to visit IRS.gov for a status of your filed return. Also, Reynolds + Rowella’s Tax Director Pat Butler is available to discuss any tax issues or questions you may have.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

New Interim Final Rule Clarifies Key Changes in Paycheck Protection Program

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New guidance has emerged from the Small Business Administration with another interim final rule—this new rule clarifies certain key changes made to the Paycheck Protection Program (PPP) by the Paycheck Protection Program Flexibility Act (PPPFA) signed into law on June 5, including:

  • Extending the period in which expenses paid with a PPP loan could be eligible for loan forgiveness from 8 to 24 weeks from a loan’s origination (not to extend beyond December 31, 2020).
  • Allowing borrowers who received a PPP loan before enactment of the June 5 legislation to elect that the covered period run for 8 (vs. 24) weeks
  • Clarifying the amount of loan forgiveness can be up to the full principal amount of the loan plus accrued interest and caps the payroll costs during the covered period to $46,154 per employee (24 week covered period) or $15,385 per employee (8 week covered period) plus covered benefits for employees (but not owners).
  • Clarifying the maximum amount of forgiveness for S-Corporation Shareholders, general partners, and self-employed individuals is determined by calculating owner compensation replacement limited to 2.5/12 of 2019 net profit up to $20,833 (24 week covered period) or limited to 8/52 of 2019 net profit up to $15,385 (8 week covered period).
  • Lowering the requirements that 75% of a borrower’s loan proceeds must be used for payroll costs and that 75% of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60% for each of these requirements. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
  • Extending the deferral period for borrower payments of principal, interest, and fees on PPP loans to the date that SBA remits the borrower’s loan forgiveness amount to the lender (or, if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period).
  • Providing a safe harbor from reductions in loan forgiveness based on reductions in full-time equivalent employees for borrowers that are unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.

Download a copy of the June 16, 2020 revised Loan Forgiveness Application Instructions, 

Download a copy of the revised Loan Forgiveness Application Form 3508EZ.

The last day which a PPP loan application can be approved remains June 30, 2020.

The PPP loan forgiveness process is time consuming and complicated, even more so than the PPP application process itself – calculations are complex and supporting documentation needs to be thorough and succinctly compiled. If you have any questions regarding your PPP loan or need assistance completing your loan forgiveness application and calculating your loan forgiveness amount, please contact John Priola.

We will continue to keep you updated on the changes to this program as they are released.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

Paycheck Protection Program Flexibility Act (PPPFA).

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On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA). The PPPFA will provide additional flexibility to many borrowers attempting to maximize the benefits provided by the Paycheck Protection Program (“PPP”) established as part of the CARES Act.

The following are highlights of the PPPFA:

  • The PPPFA reduces the amount of the loan needed to be spent on payroll from 75% to 60%. Note that the law does not change the list of expenses eligible for forgiveness; rent, mortgage payments, utilities, and interest on loans.
  • The PPPFA extends the time period to spend the loans to 24 weeks. While businesses will still need to spend the money on payroll and authorized expenses, they now have until the end of 2020 to do so.
  • For salaries to count towards forgiveness, previous guidelines stated that all workers had to be rehired by June 30, 2020. Under the new law, businesses now have until December 31, 2020, to rehire workers in order for their salaries to count towards forgiveness.
  • In addition to extending the rehire date, the law also adds additional exceptions for a reduced head count. The PPPFA states a business can still receive forgiveness on payroll amounts if it:
    • Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
    • Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
    • Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
  • A business now will have five years at 1% interest to repay the loan. Additionally, the first payment will be deferred for six months after the SBA makes a determination on forgiveness.
  • The PPPFA permits borrowers to delay the payment of employer payroll taxes until December 31, 2021 (with respect to up to 50% of the amounts due) and December 31, 2022 (with respect to the remaining amounts due up to 50%). Borrowers were previously prohibited from this benefit if their loans were forgiven in whole or in part.

Employers should also continue to diligently document their use of the funds, so when loan forgiveness time comes, they can quickly and accurately substantiate their use of the loan and increasing the odds of full forgiveness. 

If you have any questions regarding your PPP loan or need assistance completing your PPP loan forgiveness application and calculating your loan forgiveness amount, please contact John Priola. 

Visit the Reynolds + Rowella COVID-19 Resource Center for further guidance with answers to frequently asked questions and regulations with interim final rules as they becomes available.

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

SBA ISSUES INTERIM FINAL RULES

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The Treasury and Small Business Administration (SBA) released two new Interim Final Rules (IFR) – one on Loan Review Procedures and one covering Loan Forgiveness.

The first one on loan review procedures and related borrower and lender responsibilities contains primarily new, important information related to the forgiveness process, lender’s responsibilities when reviewing forgiveness applications, and SBA’s authority to review loans.

IFR on Loan Review Procedures and Related Borrower and Lender Responsibilities

The second interim final rule on forgiveness contains some new information as well as finalizes in a rule form much of the information found in the new forgiveness application and prior Treasury FAQs that were previously issued – click here for article related to the application and FAQs.

One new helpful FAQ is related to whether bonus pay or hazard pay during the 8-week covered period may be included in the definition of “payroll costs.” The interim final rule clarifies that the payment of bonuses and hazard pay to employees are eligible for loan forgiveness. Total compensation, including bonuses and hazard pay, cannot exceed $15,385 per employee. The use of bonuses may be an excellent way for business owners to meet the PPP payroll requirements, while also recognizing those employees who worked through, and continue to work through, very challenging circumstances.

IFR on Loan Forgiveness

Additionally, Congress is considering legislation that will give small businesses more flexibility in spending their PPP loans. We will keep you informed of all new developments. Please continue to check the visit the R+R COVID-19 Resource Center section of our website for updates.

Remember – any amount that is not forgiven must be re-paid. If you need assistance completing your PPP loan forgiveness application and calculating your loan forgiveness amount, please contact John Priola. 

REYNOLDS & ROWELLA | ACCOUNTING AND CONSULTING

Reynolds + Rowella is a regional accounting firm known for a team approach to financial problem solving. As Certified Public Accountants, our partners foster a personal touch with our clients. As members of DFK International/USA, an association of accountants and advisors, our professional network is international, yet many of our clients have known us for years through the local communities we serve.

The firm has offices at 90 Grove St., Ridgefield, Conn., and 51 Locust Ave., New Canaan, Conn. For more information, give us a call at 203.438.0161 or email us.

where to find us and how to call us

90 Grove Street / Ridgefield, CT 06877 / Office: 203.438.0161 / Fax: 203.431.3570
51 Locust Avenue / New Canaan, CT 06840 / Office: 203.972.5191