Blog #3 by Montgomery Dillavou CPA The Coronavirus Aid, Relief, and Economic Security Act or the CARES Act.
What’s a gig worker ? Best example is a musician who often refers to performances as ‘gigs'. The definition has expanded greatly to include many self-employed / 1099 contract workers including Uber/Lyft drivers, web-designers working from home for numerous companies, hair stylists, personal trainers, etc. Really anyone who reports their income on Sch C of their Form 1040 and/or single member LLC’s who report their income on Sch C, Form 1120S or Form 1120. Gig entities have no W-2 employees, they may have 1099 independent subcontractors.
Example: A Real Estate Agent or Attorney or Mechanic doing business through their own LLC and has no employees. Really any self-employed individual doing business as an LLC.
Option 1: Applying for the Forgivable Small Business Loan. Well, the amount you can borrow is based on your payroll for the previous 12 months as I discussed in Blog #2. Under this calculation these entities have zero, or very little payroll (if they have paid themselves as a W-2 employee). So getting one of these forgivable loans isn’t an option or the amount is so small it isn’t worth the effort. Therefore, the only option available is applying for unemployment. Yes, for the first time in history, self-employed individuals with little or no W-2 history can receive unemployment benefits.
How Much Can I Get? Under the Stimulus Bill, Freelancers, gig workers, self-employed, can receive half the average unemployment benefit in their state and an extra $600 per week. How much is the average ? Well, if you didn’t already know, unemployment benefits are not very much, the average per week is about $150. So, you can hope for $750/week or about $3,000 per month. The Bill provides for these benefits for up to 4 months.
To get your money flowing. Apply at your state’s unemployment office. Most states are taking applications online.
Unemployment on Steroids ?? That’s what they’re telling us. Yes, we’ve never seen such broad coverage and such a large amount being paid out, $3,000/mo !!
Monty’s Note : I am most concerned about this portion of the Bill, none of the 50 state’s unemployment offices have the systems or personnel to administer this many claims or this amount of Federal money being given to them. They have never before provided benefits to this sector of our workforce (gig/self-employed). This sector of our economy desperately needs this assistance, right now! I foresee the Fed’s will have to instead use the IRS or the SSA to deliver these benefits. The IRS / SSA already have the systems in place, personnel and the information on these gig/freelancers (as long as they have filed their 2018 and/or 2019 income tax returns). Prepare yourself for the worst case scenario here. If you apply for unemployment today, March 30th, in my opinion you will not see your first electronic deposit into your checking account until May 1st at best. I hope I am wrong here.
Who should file for unemployment In addition to gig / freelancer’s mentioned above if you are a traditional employee and you’ve been laid off, furloughed, told not to come to work because of the detection of Covid-19 in your workplace. Individuals who were scheduled to start a job and could not because their future workplaces had been shut down due to the COVID-19 pandemic, would also be eligible. Additionally, individuals whose head of household died directly due to COVID-19 will be eligible.
The 7-day waiting period before an unemployed worker can get benefits, which is a standard feature of most states’ unemployment systems, is being waived to help individuals receive cash as quickly as possible.
Employers: Not to worry, your unemployment rate will not adjust upward during this time for employees who file for unemployment.
Stimulus Checks I discussed these checks in detail in Blog #1 a couple days ago. One group who WILL NOT receive stimulus checks in April….Those with ITINs instead of Social Security Numbers. The Bill left out this group entirely.
Blog #2 by Montgomery Dillavou CPA The Coronavirus Aid, Relief, and Economic Security Act or the CARES Act.
Free Money for Businesses Who Have Employees !!
In modern history we’ve never seen such aggressive action by the Federal Government to keep workers connected to their jobs and continue receiving their pay and other benefits like health insurance.
How much can businesses borrow ? Here is the calculation. Take your total payroll costs for the 12 months prior to your loan application, including employer taxes, group health care insurance premiums paid by the business and any benefits paid for sick, family or medical leave. Divide it by 12 to get a monthly average, then multiply that by 2.5. This is your maximum loan amount you can apply for.
Here's how the loan forgiveness works: Your company's expenses for the eight-week period after the origination of the loan will be analyzed.. Every dollar your company spent on payroll, utilities, rent, or interest on mortgage debt will be added together. That amount will be forgiven, up to the total amount your company borrowed through the program. Employees who earn more than $100,000 are exempt. In other words their pay is NOT part of the loan forgiveness. Note, this is for rent or Mortgage obligations entered into prior to Feb 2020. So don’t go buy or rent a new building now if you want these expenses forgiven.
There is one caveat, however. The amount that is forgiven will be reduced for businesses who lay off employees during the first eight weeks following the loan. Companies who reduce wages of employees by 25 percent or more will also have the forgivable amount reduced.
The good news is that businesses that have already let employees go before accepting the loan will not be subject to such penalties. And if those businesses rehire employees after accepting the loan, they'll receive additional credit to cover their wages.
How to Apply: https://www.sba.gov/funding-programs/disaster-assistance Start here and contact your banker at the same time. The loan app is completed and funded by your existing banking relationship.
Blog 1 by Montgomery Dillavou CPA - The Coronavirus Aid, Relief, and Economic Security Act or the CARES Act
The CARES Act was signed by President Trump and put into law about 24 hours ago. As I read through this 880 page document, here are some of my initial interpretations. I will Blog more in the coming days about this as I field more questions and comments from clients, friends and colleagues. - Montgomery Dillavou CPA
Direct payments: Americans will receive a one-time direct deposit of up to $1,200, and married couples will get $2,400, plus an additional $500 per qualifying child. The payments will be available for incomes up to $75,000 for individuals, $112,500 for heads of household and $150,000 for married couples. This is true even for those who have no income, rely on Social Security benefits, or whose income comes entirely from non-taxable, means-tested benefit programs.
Phaseouts apply: for every $100 of income above those thresholds, your check will drop by $5. So, if you are a single filer earning $75,100, your check will be $1,155 ($1,200-$5). If you are a single filer earning $85,000, your check will be $700 ($1,200-$500). If you do the quick math on that, it means that you'll phaseout completely (meaning that you'll get nothing) once you hit $99,000 as a single filer, $198,000 as a married couple filing jointly, or $146,500 for heads of household.
What is a qualifying child ? Relationship - Your son, daughter, adopted child, stepchild, foster child or a descendent of any of them, such as your grandchild. Brother, sister, half brother, half sister, step brother, step sister or a descendant of any of them, such as a niece or a nephew. Age At the end of the filing year, your child was younger than you (or your spouse if filing a joint return) and younger than 19.
At the end of the filing year, your child was younger than you (or your spouse if filing a joint return), younger than 24, and a full-time student. At the end of the filing year, your child was any age and permanently and totally disabled3
Residency The child must have the same main home as you (or your spouse if filing a joint return) in the United States4 for more than half of the tax year
Technically, the checks are advances of refundable credits. Treasury will advance your check based on your most recently filed tax return (2018 or 2019 tax return). If you haven’t filed a tax return, the bill allows the Treasury to use the information on your 2019 Form SSA-1099, Social Security Benefit Statement, Form RRB-1099, Social Security Equivalent Benefit Statement.
Will I still get the check if I owe the IRS some money? Yes. If your refund would normally be seized to pay a tax debt, that shouldn’t happen here. Shouldn’t. Assuming it works as planned.
How will the amount be distributed ? Electronically if you had your most recent federal tax refund or balance due deposited or withdrawn from your bank account. If your refund was mailed to you or you mailed in your balance due then the check will be mailed to you. This is expected to take an extra 3 - 5 weeks.
Use of retirement funds: The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Older Americans who are subject to mandatory minimum distributions from their retirement accounts would be able to keep their capital invested instead of being forced to cash out to draw on that capital without penalty, which is suspended for 2020
Small businesses: Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven.
The unemployed: The program's $250 billion extended unemployment insurance program — "unemployment on steroids," expands eligibility and offers workers an additional $600 per week for four months, on top of what state programs pay. It also extends UI benefits through Dec. 31 for eligible workers. The deal applies to the self-employed, independent contractors and gig economy workers. Employer state unemployment rates will not be adjusted upward for employee claims for the remainder of 2020.
Coronavirus testing: All testing and potential vaccines for COVID-19 will be covered at no cost to patients.
Restores Support for Businesses Suffering Losses: The bill also allows businesses to carry back losses from 2018, 2019, and 2020 to the previous 5 years, which will allow businesses access to immediate tax refunds.
Delays Payroll Tax Payments for Employers: Employers would be able to delay the payment of their 2020 payroll taxes until 2021 and 2022.