As this year passes the mid-point, we are wishful it can'r get any more crazier than it is now, but it certainly looks like it hasn't stopped ...
This month's QuickBooks Tips & Tricks will actually focus on some of the government programs that have been put in place that certainly have changed your accounting practices as well as your payroll. We know it's been a trying last several months in regards to all the new payroll & tax legislation coming to the forefront.
We will begin with the most recent changes, and move through other changes back to the introduction of the Payroll Protection Loan and the Economic Injury Disaster Loan.
- Employees pay a 6.2% Social Security tax on wages up to an annual limit, which is $137,700 in 2020.
- For example, an employee earning $137,700 or more would pay $8,537.40 in Social Security taxes in 2020.
- Employees also pay Medicare tax, but this is not affected by the executive memorandum.
- Deferral of employees' portion of payroll taxes (social security) will take place between 9/1/2020 - 12/31/2020
- Note: this relates to the employee portion of payroll taxes only and is a deferral.
- It is Not (currently) an elimination.
- It is still unclear when these payroll taxes would have to be paid by employees.
- It's also unclear whether this will be automatic, or something an employee has to opt into.
- This is an important point and one that I will let you know as soon as we know.
- As long as your business is currently in good financial standing, it may not be beneficial to take advantage of
these deferrals. As there are no current plans for these deferments to be forgiven.
Another twist in the normal payroll processing includes The Families First Coronavirus Response Act (FFCRA or Act) which requires certain employers to provide employees with paid sick leave, or expanded family and medical leave for specified reasons related to COVID-19.
This new mandated benefit provides employers with wage and tax credits for providing employees with special family leave as well as personal leave if they test positive for the virus, someone in their immediate family tests positive, or if they have to take care of a family member as a result of the virus.
What mad this more difficult is that some payroll programs were not updated quick enough to have this established properly at first. This did cause some issues with the filing of the second quarter Federal 941s.
The following link below will explain in detail the circumstances related to this benefit from the Federal perspective. Keep in mind, your individual State may enact additional guidance and benefit levels, so check with your state website on this as well.
The final unprecedented program that was available until August 8th. This program was designed to assist employers to support their employees, even if the business was either not in operation due to the virus, or sales were affected that normally would cause the business to release employees.
The scope of this brief article is not designed to discuss the challenges that sever small businesses had with applying and receiving the loan from their banks, or the abuse that several larger companies took advantage of their banking relationships.
This program is still in flux for a number of reasons, but the requirements for allowing the loan to be forgiven have been loosened in many ways.
If you received a PP Loan prior to June 5th, you can opt to apply for forgiveness using the eight week period, or you can use the new 24 week period. It is advised to review these options now to determine the best for your business.
To learn more and get the insight on how to calculate and apply for forgiveness see below:
First, the forgiveness is only for Federal Tax purposes. It is still unclear if States will provide relief as well. Typically, if a loan is forgiven, the amount forgiven become Income, hence increasing the Business overall profit.
To forgive a loan and not cause it to become Income is very unusual practice, and it appears a number of States may not forgive the loan on the State level.
However, another issue has arisen, that makes whether the SBA forgives the loan almost mute. The IRS has recently stated that the payroll and expenses paid for with the loan proceeds are not deductible as normal business expenses. This may have the same effect as not forgiving the loan at all.
This was not the intention of Congress, and with skeptical hope, they will establish better clarification in the regulations.
Another unprecedented program rolled out by the Small Business Administration (SBA) is the Economic Injury Disaster Loan (EIDL). This is a low interest loan from the SBA that normally was designed for losses from loss from catastrophic events. This normally was reserved for losses due to natural events such as storms, tornadoes, hurricanes, and floods.
However, this was extended to small businesses that have been economically damaged by the pandemic. This is a loan and is not designed to be forgiven unlike the Payroll Protection Loan. The repayment is also deferred until next year.
This has been a life saver to many businesses across the Country.