May 12, 2020
The IRS says eligible individuals have until noon tomorrow (May 13) to submit bank account information for direct deposit of their economic relief payment. People who are owed money but whose bank account details are not on file will get a check in the mail, but it could take weeks. You can go to
Get My Payment
to add your account information.
The IRS outlined several "common scenarios" yesterday explaining why some people received a smaller coronavirus relief payment than they expected. Under legislation President Trump signed last month, the IRS is issuing one-time direct payments to eligible Americans of up to $1,200 per adult and $500 per child. These scenarios include the impact of life changes such as a new baby or recent marriage not being taken into consideration due to not filing a 2019 return or a dependent not being eligible. In addition, payment amounts could have been offset by past-due child support or garnished by creditors. Taxpayers will be sent a notice from the Treasury Department's Bureau of Fiscal Service if this is the case.
The IRS has already issued about 130 million payments. But the rollout of the payments has caused confusion for some taxpayers, including some who have reported not receiving the full amount that they expected to get.
PPP Update
Treasury Secretary Steven Mnuchin said yesterday that he’s willing to work with Congress on bipartisan fixes to Paycheck Protection Program (PPP). Mnuchin said that he was open to changing the terms of the program. Lawmakers and business advocates have concerns about the terms of the loans offered.
As you know, the PPP offers loans to small businesses that are negatively impacted by COVID-19. The loans can be entirely forgiven if the business uses 75% of the money for eight weeks of payroll plus 25 percent of permitted overhead costs during that period.
Lawmakers and business owners have called on the Trump administration to give recipients more flexibility to hold on to their loans for longer and use more of the funding to cover overhead.
The SBA inspector general also warned in a report on Friday that the administration’s 25 percent cap on overhead costs eligible for forgiveness did not align with the law that created the PPP and could harm the businesses the program intends to help.
According to an article in The Hill yesterday, Mnuchin tamped down concerns about the program Monday and insisted that the SBA rules were an accurate reflection of the law as written by Congress. However, Mnuchin also said he was open to making a “technical fix” to aid businesses that may not be able to open soon even under loosening social distancing rules, including restaurants.
As of May 10, $120 billion in funding is still available. One reason why the money is lasting longer in round two is because a number of publicly traded companies have returned multi-million-dollar loans.
Banks have been reporting that thousands of applications remain in their internal queues. In fact, many large banks are no longer taking new applications, as they are uncertain if they will be able to get their current inventory of applications funded before round-two money is allocated. Larger banks have told customers that they may be better off working with a smaller bank. Chase alone has said they have received more than 300,000 applications.
The CARES Act states that a forgiven PPP loan will not be considered taxable income to the small business. Even so, when you are forgiven debt by a bank or other party, the lender will typically issue the borrower a 1099-C for the amount forgiven. The business or its owner will then have to include the 1099 on their tax return and pay income tax on the amount forgiven.
In response, the IRS issued
Notice 2020-32
which stated that while the forgiven loan is not income, the business cannot expense the use of those funds if the funds are later forgiven because of tax rules already in existence regarding loan forgiveness and business expenses. The net effect of this is that small businesses will be taxed on their PPP loan forgiveness because they will not be able to write off those expenses (payroll costs, rent, mortgage interest, utilities).
Feel free to contact any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ) with questions. Rich Higgins, CPA, managing principal – New Jersey office can be contacted at
Richard.Higgins@MCC-CPAs.com
. I can be reached at
Marty.McCarthy@MCC-CPAs.com
. As always, we are happy to help.
Stay safe,
Marty McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company
Sources: U.S. Senate Committee on Finance Press Release. May 4. IRS COVID-19-Related Employee Retention Credits: Amount of Allocable Qualified Health Plan Expenses FAQs.
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
