Identity Theft Unemployment Update

Employers:

We know that unemployment fraud has been a challenge for employers nationwide. The Ohio Department of Job and Family Services appreciates your efforts to report it to us, so we can stop payment and take other needed actions. This week, we updated the information for employers on our website to clarify the steps employers should follow if they or their employees are affected:

Step One: Report Identity Theft to ODJFS through the website or hotline

Complete this secure online form or call (833) 658-0394. If you use the online form, you will be prompted to download an Excel template, enter the requested data in the template, and upload the file as instructed. ODJFS will process the information, conduct investigations and, if necessary, issue corrections to the Internal Revenue Service (IRS) on any 1099s issued to victims.

Step Two: Continue to respond to any “Request for Separation Information” notices that you receive from us

Please respond timely to these notices and write "fraud/identity theft" on them so that we can investigate the claims and take appropriate actions. The most expedient way for employers to respond to Request for Separation forms is by responding via your online account or by using the State Information Data Exchange System (SIDES) portal.

Step Three: Share resources with your employees

Please share the resources for individuals on this website with the employees at your organization. This web page includes a link to the IRS guidance regarding identity theft involving unemployment benefits and other measures individuals can take to protect themselves.

We recognize that reporting suspected fraud through both Step One and Step Two may be an inconvenience, but both steps are necessary to reduce the likelihood that fraudulent claims will be paid.

As a reminder, you can access the online reporting portal, identity theft resources, and frequently asked questions and answers at unemployment.ohio.gov, by clicking on the red “Report Identity Theft” button.

Thank you again for your time and cooperation.

Sincerely, 

Office of Unemployment Insurance Operations 

President-elect Biden's Proposed Tax Plan Details

While the race for control of the Senate won’t be settled until January due to the run-off election in Georgia, President-elect Joe Biden has already released what his tax plan would look like. While his ability to make these changes depends on who ultimately controls the Senate, it is important to consider what changes Biden has proposed. The magic number you will hear regarding most of Joe Biden’s individual tax changes is $400,000.

Biden has proposed raising a several taxes on individuals that earn more than $400,000. One such tax increase would be an additional 12.4 percent Social Security tax, to be split evenly between employer and employee, on payroll earned above $400,000. The interesting part about this increase is that previously social security had a wage cap of $137,700 (adjusted annually for inflation), but this additional tax would leave a gap between that original cap and the new $400,000 base. This would mean that you could earn more than $137,700, but less than $400,000 and not have to pay the proposed additional Social Security tax.

Biden has also proposed raising the top individual tax rate from 37% back to the pre-TCJA rate of 39.6%. Biden would also raise the capital gains tax rate on those individuals earning over $1 million from 20% to 39.6, or the ordinary rate. It is important to note that Biden has come out and stated that there would be no change to capital gains rates for those earnings less than $1 million.

Biden is also proposing changes to itemized deductions for those earning over $400,000. He wants to cap itemized deductions to 28% of income and restore the Pease Limitation. The Pease Limitation, which was eliminated under the TCJA, imposes a 3% reduction on itemized deductions once taxpayers reach a certain income threshold. In 2017, the last year the Pease Limitation was in effect, the thresholds for when the Pease Limitation began started at an AGI of $261,500 for single taxpayers and $311,300 for married filing joint taxpayers. There has been no indication on what those thresholds may look like now if Biden is able to make these changes.

Another change that will impact owners of flow-through businesses is phasing out the Section 199A deduction for taxpayers with taxable income over $400,000. This deduction already has several limitations attached to the deduction, but Biden would look to impose the additional $400,000 of taxable income restriction on the deduction in addition to the already existing limitations.

Changes to the estate tax would also be made. Biden’s proposal includes eliminating the estate tax changes from the TCJA and restoring the amounts from 2009. Currently for estate tax purposes each taxpayer has a lifetime exclusion of $11.4 million plus any deceased spouse unused exception if a portability election was made. The 2009 estate tax lifetime exclusion was only $3.5 million. The maximum estate tax rate would also go from 40% to 45% under these same rules.

Individual changes aren’t the only changes Biden is proposing, corporate changes included in Biden’s tax plan include raising the tax rate from the flat 21% to 28%. Biden also wants to bring back a form of the alternative minimum tax for corporations with book profits over $100 million. The minimum tax would be structured so that you pay the greater of 15% of your book profits or your regular corporate tax. Biden is also looking to expand upon tax incentives that were created under the SECURE Act for small businesses to create qualified retirement plans. Details of these incentives have not been released to-date.

Overall Biden’s goal would be to raise taxes on wealthy individuals by increasing certain tax rates and limiting several deductions. He would look to increase the corporate tax by raising the rate from 21% to 28% and imposing a minimum tax for large corporations. Finally, he would decrease the lifetime exclusion and raise the maximum tax rate from 40% - 45% for estate tax purposes. All of these changes are dependent on what the results of the run-off election in January are in Georgia. If the Republicans retain control of the Senate then it will be nearly impossible for Biden to pass through these changes as currently constructed. We will continue to watch for additional updates and changes as they become available and after the results of the Georgia election become final in January.

For more information on President-elect Joe Biden’s proposed tax plan visit:

https://taxfoundation.org/joe-biden-tax-plan-2020/

April 30th PPP Loans IRS Notice

On Thursday April 30th, the IRS issued a new notice regarding the Payroll Protection Program (PPP) Loans.  One of the major points in the notice is clarifying that any part of the proceeds from the loan received that become forgivable cannot also be used as a tax deduction on the Company’s 2020 tax return.  For example, if you received $100,000 PPP loan and used $80,000 on payroll during the 8 week reporting period and that $80,000 is forgiven by the government you cannot take that $80,000 as payroll expense during the period on your 2020 tax return.   See the link to the IRS notice below for more details:

https://www.irs.gov/pub/irs-drop/n-20-32.pdf

CARES Act Charitable Contributions

CARES ACT Charitable Contributions Potentially Huge Tax Deduction for some

I recently had a conversation with a friend and tried to explain how some people get credit for charitable donations they make during the year to lowering their tax bill and others do not. I thought I explained it perfectly “If you itemize your taxes you get to deduct any charitable contributions made during the year, dollar for dollar on your tax return; however, due to the CARES Act this year you get to deduct up to $300 as an above the line deduction regardless of whether or not you itemize.” Rightfully my friend responded with a bit of sarcasm “Crystal clear mate thanks, you just need to fill out form 26.1-b, itemize your stuff and submit it on the next full moon.” 

I am going to try this again, back to the basics as best I can:  when you, your parents, your friend,  your CPA, or whoever is preparing your tax return there are two options of major deductions that you can choose to reduce your tax bill.   choose the option that lowers your tax bill the most.

• First option, the Standard Deduction – The simplicity of this option makes it attractive, but it may not lower your taxes  which is allowed for all to help simplify the tax return and is a set amount you are allowed to take as a deduction on your tax return ($24,800 for married filing joint and $12,400 for single filers).   If you take the standard deduction you do not get to take charitable contributions as a deduction to your tax liability.

• Second option, itemize your deductions, which for most people consist of these three categories:

  • Total Charitable Contributions made during the year

  • Total Mortgage Interest paid during the year

  • Total Real Estate Tax/State and Local (maximum allowed for this category is $10,000) for the year

• In order to take advantage of the itemize option the total of the major categories above must be greater than $12,400 for single filers and $24,800 for married filers.

• If you do not think you will qualify to itemize your deductions the CARES Act allows up to $300 in charitable donations for people who take the standard deduction in 2020, which means you do not have to itemize your taxes to get at least get a $300 benefit to lower your tax bill.  For those that can afford to give anything to a qualified charity that means something to you will get at least some benefit when it comes tax time. How did I do this time?

Now for the big news for you itemizers out there, if there was ever a time to help a charity that means something to you and you are fortunate enough to accumulated wealth to help others, 2020 may be the year.  The normal tax law limits charitable contributions to 60% of your Adjusted Gross Income (AGI); however, the CARES ACT made it that you can contribute 100% of your AGI as a Charitable Contributions.  To sum it up you can get your tax liability to zero in 2020 with charitable contributions and help not-for-profits during this challenging time for all.  If you have any questions please reach out to tlund@tszcpa.com or by phone 216-765-8110

Good News for People Waiting on Their Payroll Protection Program (PPP) Loans

The news broke last week that all money the CARES ACT gave out in order to fund the Payroll Protection Program (PPP) loans had dried up.  There are many people out there who received a loan number but had not received their proceeds from the PPP loan.  The Senate passed a $480 Billion interim stimulus bill to help small businesses and the health care industry.  The Bill set aside $380 Billion which is solely dedicated to the small business loans as the money in the original Bill had not fulfilled all the applied.  Specifically, $320 Billion is set aside for use of using of PPP Loans to qualified applicants.  This may be a good time to call your bank and see if you are in line to receive proceeds from the new Bill passed.

Cuyahoga County Small Business Stabilization Grants and Loans

Small Business Stabilization Fund

Cuyahoga County announced that it has created the Small Business Stabilization Fund to assist small neighborhood businesses throughout Cuyahoga County. The first round of applications will begin the week of April 17, 2020 through the end of the business day on April 23, 2020.  Cuyahoga County is offering this opportunity to small businesses with grants/low interest loan money to businesses that qualify.

 One-time Grants

A one-time grant for $2,500 to $5,000 and eligibility requirements are as follows:

• Businesses must have less than 20 employees

• Businesses must have less than $1 million in revenue

• Businesses must have been in operation for at least one year 

• Businesses must have a physical establishment in Cuyahoga County

• The owner must be a resident of Cuyahoga County

• 25% of the businesses’ employees must live in Cuyahoga County

• Businesses must have a plan to re-open within one calendar year

• Businesses must have experienced more than 50% of revenue disruption due to COVID-19

• Businesses must certify that they have applied, or are not eligible, to one of the SBA Disaster Relief Programs through the U.S. Small Business Administration (SBA) at www.sba.gov

  • Economic Injury Disaster Loan (EIDL)

  • SBA 7(a) Loan under the Paycheck Protection Program

The county website lists the preferences and other exceptions.

Small Business Stabilization Loans

The Stabilization Fund has loans available from several partners to meet the capital needs of your business. Please fill out the Business Assistance Application to be connected to appropriate lending partners.

Amount

• Small Business Loans (1-100 employees): beginning at $5,000

• Mid-Size Business Loans (101-500 employees): beginning at $10,000

Eligibility Requirements

• Physical establishment in Cuyahoga County

• Have been in operation for at least one year

The county website lists the preferences and other exceptions.

The link to the website, application and other information is below.

https://cuyahogacounty.us/development/businesses/small-business-stabilization-fund

529 Plan

Many college classes were cancelled due to the coronavirus and parents may have been refunded part of their tuition paid.  If you used 529 plan money you could be at risk of being taxed and charged a 10% penalty. Be aware you have 60 days to refund the money into the 529 plan and will not be taxed or charged the 10%. 

Contact your 529 plan account provider to ensure proper treatment is made.

COVID-19 Cares Act - April Update

Tramer, Shore, and Zwick sent out information in prior weeks on the CARES Act and how it can help small businesses and individuals.  Information is updated daily due to the extreme rush to implement the stimulus plan to help Americans. We have new and updated information we believe could be valuable to many businesses and individuals.

Updates to the SBA Loan Information:

1. During the week it was clarified that Companies can apply for the Paycheck Protection Program (PPP) Loan and the $10,000 Economic Injury Disaster Loans “EIDL” and Emergency Economic Injury Grants forgivable loan, if necessary.

   1. Loan proceeds for the PPP loans can be used for payroll, mortgage interest or rent, health-care benefits payments, utility payments, and certain other costs, and are forgivable in an amount equal to the sum of such costs incurred or payments made during the eight weeks after loan disbursement, if employers maintain employment and wage levels.

   2. An eligible business that applies for an EIDL can also obtain an emergency advance of up to $10,000 within three days of when the SBA receives the EIDL application. To access the advance, businesses must first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs, due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments. An employer that applies for an EIDL (regardless of whether related to COVID-19) may also apply for a PPP loan, so long as both loans are not used for the same purpose or are otherwise duplicative. An employer can also refinance an existing EIDL into a PPP loan by adding the amount of an EIDL to the sum of the payroll costs. However, any advanced amount received under the EIDL Grant Program would be subtracted from the amount forgiven of the PPP loan.

   3. The PPP loan is a two-year loan and has a 1% interest rate one eligible amount able to borrow.  Payments are deferred until 6 months after receipt of the loan proceeds.

   4. This loan is first come first serve.

   5. When calculation payroll costs calculations do not include individual contractors (individuals who you issue 1099’s to every year); however, if you are a sole practitioner or partnership and pay self-employment tax you are eligible to receive these loans if needed.

   6. Sole practitioners and independent contractors (who may have limited payroll) can apply for this on Friday, April 10th, 2020.

2. If applying for the loan you can defer the receipt of the loan until June. This can be helpful for restaurants, hair salons and other businesses where operations and hiring will not begin until the stay at home policies are lifted around America.  If funds are used for the payroll costs, they will be forgivable, thus incentivizes businesses to use proceeds to help with these costs.

3. Citizens Bank was just added to the list of accepting loans with Huntington, Bank of America, PNC, Key Bank and Chemical Bank.

4. Banks are starting to take applications over the phone, so don’t be afraid to call your bank, all the major banks have information on their website that can be helpful when applying.

5. If applying with a new bank, ensure that your credit agreements do not have any clauses that would prevent you from doing so.

6. For PPP loan forgiveness a 75% of the loan proceeds must be spent on “payroll costs” including wages, commission, mortgage interest, health care costs, rent payments, utility payments, interest on other debt that occurred before 2/15/20.

Individual Stimulus Checks:

1. The checks should be starting to come out this week April 6th or the next April 13th. Eligibility and amounts to be received are the following:

   1. $1,200 per adult and $500 per child to individual filers earning less than $75,000 annually; however, if you made more than this but less than $99,000 will receive a prorated amount less than $1,200.

   2. $1,200 per adult and $500 per child to joint filers earning less than $150,000 annually; however, if you made more than this but less than $198,000 will receive a prorated amount less than $1,200.

   3. If your income was higher than the thresholds above, the payment amount will be reduced by $5 for every $100 above the thresholds.

   4. Based on guidance we have read that they first will look at your 2018 return if qualify will look at 2019 in case no longer qualify.  Some people may qualify one year and not another, this is important for people who are close to the thresholds above to determine if should file their 2019 tax return or not.  For example, if someone made $74,000 in 2018 but made $100,000 in 2019, it would be beneficial to not file 2019 until later in the year. And reversely if made less in 2019 would be beneficial to file in the current year as quickly as possible to receive your stimulus checks.

2. 2019 tax payment due date is now 7/15/2020 you can wait until then to pay your 2019 tax due and 1st quarter estimates.  Note: Second quarter estimates are not due on 6/15/20 like they normally are. It may be worth making higher 1st Quarter estimates to ensure no late penalties are assessed, the guidance changes daily!

3. Note you can add your direct deposit information in your tax return to ensure you receive the stimulus check timely.  Per review of guidance received, eligible individuals with direct deposit will be paid first then checks will be issued and they will start issuing checks starting with the lowest income to the highest income.

4. If already filed your return and did not use the direct deposit method to pay tax or receive your refund, the IRS is working on a portal to add your banking information if you do not already use direct deposit for tax information.  We will keep everyone up-to-date when that goes up.

Other Important Information:

Tax Provisions

1. Student Loans

   1. Employers are permitted to provide student loan repayment benefits to employees up to $5,250 towards student loans. Such payments would be excluded from the employee’s income for 2020 tax year.

   2.  The Stimulus plan included all involuntary collections of student loan debt suspended, which automatically suspends payments on direct loans and Federal Family Education Loans held by the government through September 30, 2020, with no interest accruing with the delay in payments.  These suspended payments will not affect credit score.  If have Student loans and are still employed, may be beneficial to make payments as it will go straight to principal saving potentially thousands in interest over the loan re-payment period.

   3. If you qualify for assistance, the suspension of payments is automatic, so you don't have to worry about contacting your student loan servicer. But while you don't need to make payments until at least the end of September, the federal government isn't making those payments for you. As a result, your repayment term will be extended by the duration of the suspension period.

2. Employee Retention Credit

   1. Private-sector employers are allowed a refundable tax credit against employer social security tax equal to 50% of wages paid by employers to employees during the COVID-19 crisis, up to $10,000 per employee available whose operations were fully or partially suspended due to orders from the governmental authority limiting commerce due to COVID-19, or experienced 50% decline in gross receipts when compared to same quarter of the prior year. Employers may defer payment of the employer share of the Social Security tax, beginning after the effective date of the CARES Act through December 31, 2020. Deferred tax amounts would be paid over two years, in equal amounts due on December 31, 2021 and December 31, 2022.

   2. You CANNOT take this credit and receive the PPP loan, it is one or the other.

3. IRA

   1. The IRS is allowing early withdrawals from retirement plans or IRAs to impacted individuals of up to $100,000 not subject to the 10% early withdrawal penalty from Jan 1, 2020 to end of 2020.

      1. This will be taxed over 3 years and can be repaid anytime during a 3-year period after distribution.

      2. Max loan amount from IRA increased from $50,000 to $100,000.          

      3. There is a temporary waiver of required minimum distribution rules for certain retirement plans and accounts – they are not required for 403b, 401k and IRAs for calendar year 2020.

4. Unemployment Benefits

   1. Self-employed workers, part-time workers and those with limited work histories are eligible for temporary unemployment for 39 weeks.

   2. Unemployment is making regular payments plus $600.

5. Benefits for employees and Employers Impacts – Expansion of the Family and Medical Leave Act of 1993 (Employers under 500 Employees)

   1. Paid Emergency Family and Medical Leave for Employees:

      1. Qualifying employees would be a need to leave employment unable to work or telework due to a need to leave for care of son or daughter under 18 years of age of such employee if the school or place of care has been closed, or if the child care provider of such son or daughter is unavailable due to public emergency.

      2. For the 12 weeks, the first two weeks can be unpaid, then 10 weeks must be paid, employer must pay at least 2/4 of employee’s regular pay minimum (being federal minimum wage), this family leave is not subject to the 6.2% employer social security tax.

   2. Paid Sick Leave for Employees (Any Employee is Eligible No Required Employment Date) – Eligible Employers are the Same as Paid Family Leave:

      1.  Eligible employees are entitled to up to 80 hours of paid sick leave if subject to a federal or state or local social distancing quarantine.

      2. Advised by a health care provider to self-quarantine.

      3.  Caring for an individual who is subject to quarantine.

      4.  Caring for son or daughter if the school or place of care for them has been closed.

      5.  Total Pay capped at $511/day or $5,110 in aggregate or $200/day or $2,000 in aggregate depending on reasons for the sick leave.

      6.  Paid sick leave is not subject to the 6.2% employer social security tax.

   3.  Tax Credits for Employers Providing Paid Family and Sick Leave:

      1. Employers who pay for family or sick leave will get a separate credit based off each payment that will reduce the employer’s share of the Social Security tax. Self-employed taxpayers are eligible for a credit against 50% of self-employment tax.

      2.  The credit is increased by the employer’s 1.45% Medicare Tax that is imposed on qualified family leave or sick pay wages and by employer’s share of allocable health care costs. Any excess credit is refundable.

      3. Family leave credit is equal to 100% of qualified family medical leave wages that are paid out.

      4.  These credits should be taken when file Form 941 claiming the credit.

      5. Example. X Co. paid $5,000 in qualified sick leave during Q1 2020. X Co. has $8,000 of total payment due on Form 941, including income and payroll taxes withheld from employees. X Co. is required to remit only $3,000. The other $5,000 can be used to pay the sick leave wages.

6. Miscellaneous

   1. Charitable Contributions made during 2020 - $300 will be an above the line deduction meaning you will not have to itemize to get the deduction.

   2.  Loss limitations used to be limited to $250,000 and $500,000 if filing joint, now there is no limit.

   3. Interest limitations increased for 2019 and 2020

Ohio

Governor Mike DeWine and Lt. Governor Jon Husted announced on April 8th, 2020, the creation of the Office of Small Business Relied within the Ohio Development Services Agency.  The Office will coordinate state efforts to identify and provide direct support for small businesses.

• It will serve as the state’s designated agency for administrating federal recovery funds awarded to Ohio for small business support.

• It will work with federal, state, and local partners to evaluate and determine possible regulatory reforms to encourage employment and job creation.

• The Ohio Business Help website has a lot of information that can potentially help your business, from ideas for managing cash flow to how to apply for SBA loans to help your business keep people employed.  The website to visit for more information is below:

• https://businesshelp.ohio.gov/

• Governor Dewine posts numerous summary Ohio updates at the twitter handle @governor.ohio.gov.

Stay Safe and please contact Tramer, Shore & Zwick should you have any questions (216) 765-8110.

COVID-19 Cares Act

Small Business Interruption Loans under the Coronavirus Aid, Relief and Economic Security (CARES) Act

Who Can Apply?

Any business with 500 or fewer employees.

The business does not have to be shut down completely or partially.  Any business that applies is presumed to need the loan and will get it.  The only underwriting standards are that the company was in business on February 15, 2020 and had employees for whom it paid salaries and payroll taxes.

The self-employed and independent contractors are also eligible for these loans.

These loans are non-recourse, meaning no personal guarantees or liens on practice assets.

What is the Maximum Loan Amount?

The maximum loan you can receive will equal 2.5 times your average “payroll costs” during the 1-year period before the loan is taken.

“Payroll costs” are defined very broadly and include:

• Employee salaries, wages, commissions, etc. up to $100,000 per year, $8,333.33 per month

• Payment for vacation, parental, family, medical or sick leave

• Severance payments

• Group health insurance

• Retirement plan contributions

How Do You Apply?

The SBA is guaranteeing these loans and businesses will need to apply through banks and credit unions.

The maximum loan amount will equal 2.5 x your average monthly payroll costs during the 12-month period preceding the loan.

Borrowers will also need to make a “good faith certification” that the uncertainty of the current environment makes the loan request necessary, that you intend to use the funds to retain workers and maintain payroll OR make mortgage payments, lease payments and utility payments and that you haven’t applied for another Section 7(a) loan.

Note that you are not required to retain employees to get the loan.  If you have laid off or furloughed your staff so they can get unemployment, you can still get the 7(a) loan, but as we will see, the amount of loan forgiveness will be reduced to the extent that staff is laid off or their pay is dramatically reduced.

There will be no fee to obtain the loan – another example of how the Feds are doing what they can to get this money circulating in the economy.  Nor are you required to first look elsewhere to get the money.

What Can the Loan Proceeds be Used For?

The loan proceeds can be used for more overhead expenses than what went into calculating the amount of the loan, including:

• Payroll costs (see definition above)

• Interest (not principal) payments on mortgages

• Rent

• Utilities

• Interest (not principal) on any debts that were incurred before February 15, 2020

How Long Can We Defer Repayment on the 7(a) Loan?

Borrowers can completely defer repayment of principal and interest for at least six months but not more than one year.  Apparently, the particular deferment period will be up to the discretion of the bank that issues the loan.

What Portion of the Loan Will be Forgiven?

The amount of loan forgiveness will equal the sum of the employer’s:

• Payroll costs (as broadly defined above)

• Interest (not principal) on any business debts that were incurred prior to February 15, 2020

• Rent

• Utilities, including electricity, gas, water, transportation, telephone and internet access

What Will the Tax Treatment be on the Forgiven Debt?

Even though this is debt cancellation income, which is normally taxable, in this case, the cancelled debt will be excluded from income.

What Happens to the Portion of the Loan that is Not Forgiven?

The remaining balance will continue to be guaranteed by the SBA, have a maximum maturity of 10 years and bear interest at the rate of 4% or less.

Please contact Tramer, Shore & Zwick should you have any questions.