Tax Relief provided by the CARES Act

We hope that you are keeping yourself, your loved ones, and your community safe from COVID-19 (commonly referred to as the Coronavirus). Along with those paramount health concerns, you may be wondering about some of the recent tax changes meant to help everyone coping with the Coronavirus fallout. In addition to the summary of IRS actions and earlier-enacted federal tax legislation that we previously sent you, we now want to update you on the tax-related provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress’s gigantic economic stimulus package that the President signed into law on March 27, 2020.

Recovery rebates for individuals. To help individuals stay afloat during this time of economic uncertainty, the government will send up to $1,200 payments to eligible taxpayers and $2,400 for married couples filing joints returns. An additional $500 additional payment will be sent to taxpayers for each qualifying child dependent under age 17 (using the qualification rules under the Child Tax Credit).

Rebates are gradually phased out, at a rate of 5% of the individual’s adjusted gross income over $75,000 (singles or marrieds filing separately), $122,500 (head of household), and $150,000 (joint). There is no income floor or ‘‘phase-in’’—all recipients who are under the phaseout threshold will receive the same amounts. Tax filers must have provided, on the relevant tax returns or other documents (see below), Social Security Numbers (SSNs) for each family member for whom a rebate is claimed. Adoption taxpayer identification numbers will be accepted for adopted children. SSNs are not required for spouses of active military members. The rebates are not available to nonresident aliens, to estates and trusts, or to individuals who themselves could be claimed as dependents.

The rebates will be paid out in the form of checks or direct deposits. Most individuals won’t have to take any action to receive a rebate. IRS will compute the rebate based on a taxpayer’s tax year 2019 return (or tax year 2018, if no 2019 return has yet been filed). If no 2018 return has been filed, IRS will use information for 2019 provided in Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

Rebates are payable whether or not tax is owed. Thus, individuals who had little or no income, such as those who filed returns simply to claim the refundable earned income credit or child tax credit, qualify for a rebate.

Waiver of 10% early distribution penalty. The additional 10% tax on early distributions from IRAs and defined contribution plans (such as 401(k) plans) is waived for distributions made between January 1 and December 31, 2020 by a person who (or whose family) is infected with the Coronavirus or who is economically harmed by the Coronavirus (a qualified individual). Penalty-free distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out. Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

Waiver of required distribution rules. Required minimum distributions that otherwise would have to be made in 2020 from defined contribution plans (such as 401(k) plans) and IRAs are waived. This includes distributions that would have been required by April 1, 2020, due to the account owner’s having turned age 70 1/2 in 2019.

Charitable deduction liberalizations. The CARES Act makes four significant liberalizations to the rules governing charitable deductions:

(1) Individuals will be able to claim a $300 above-the-line deduction for cash contributions made, generally, to public charities in 2020. This rule effectively allows a limited charitable deduction to taxpayers claiming the standard deduction.

(2) The limitation on charitable deductions for individuals that is generally 60% of modified adjusted gross income (the contribution base) doesn’t apply to cash contributions made, generally, to public charities in 2020 (qualifying contributions). Instead, an individual’s qualifying contributions, reduced by other contributions, can be as much as 100% of the contribution base. No connection between the contributions and COVID-19 activities is required.

(3) Similarly, the limitation on charitable deductions for corporations that is generally 10% of (modified) taxable income doesn’t apply to qualifying contributions made in 2020. Instead, a corporation’s qualifying contributions, reduced by other contributions, can be as much as 25% of (modified) taxable income. No connection between the contributions and COVID-19 activities is required.

(4) For contributions of food inventory made in 2020, the deduction limitation increases from 15% to 25% of taxable income for C corporations and, for other taxpayers, from 15% to 25% of the net aggregate income from all businesses from which the contributions were made.

Exclusion for employer payments of student loans. An employee currently may exclude $5,250 from income for benefits from an employer-sponsored educational assistance program. The CARES Act expands the definition of expenses qualifying for the exclusion to include employer payments of student loan debt made before January 1, 2021.

Break for remote care services provided by high deductible health plans. For plan years beginning before 2021, the CARES Act allows high deductible health plans to pay for expenses for tele-health and other remote services without regard to the deductible amount for the plan.

Break for nonprescription medical products. For amounts paid after December 31, 2019, the CARES Act allows amounts paid from Health Savings Accounts and Archer Medical Savings Accounts to be treated as paid for medical care even if they aren’t paid under a prescription. And, amounts paid for menstrual care products are treated as amounts paid for medical care. For reimbursements after December 31, 2019, the same rules apply to Flexible Spending Arrangements and Health Reimbursement Arrangements.

Business only provisions

Employee retention credit for employers. Eligible employers can qualify for a refundable credit against, generally, the employer’s 6.2% portion of the Social Security (OASDI) payroll tax (or against the Railroad Retirement tax) for 50% of certain wages (below) paid to employees during the COVID-19 crisis.

The credit is available to employers carrying on business during 2020, including non-profits (but not government entities), whose operations for a calendar quarter have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also available to employers who have experienced a more than 50% reduction in quarterly receipts, measured on a year-over-year basis relative to the corresponding 2019 quarter, with the eligible quarters continuing until the quarter after there is a quarter in which receipts are greater than 80% of the receipts for the corresponding 2019 quarter.

For employers with more than 100 employees in 2019, the eligible wages are wages of employees who aren’t providing services because of the business suspension or reduction in gross receipts described above.

For employers with 100 or fewer full-time employees in 2019, all employee wages are eligible, even if employees haven’t been prevented from providing services. The credit is provided for wages and compensation, including health benefits, and is provided for the first $10,000 in eligible wages and compensation paid by the employer to an employee. Thus, the credit is a maximum $5,000 per employee.

Wages don’t include (1) wages taken into account for purposes of the payroll credits provided by the earlier Families First Coronavirus Response Act for required paid sick leave or required paid family leave, (2) wages taken into account for the employer income tax credit for paid family and medical leave (under Code Sec. 45S) or (3) wages in a period in which an employer is allowed for an employee a work opportunity credit (under Code Sec. 51). An employer can elect to not have the credit apply on a quarter-by-quarter basis.

The IRS has authority to advance payments to eligible employers and to waive penalties for employers who do not deposit applicable payroll taxes in reasonable anticipation of receiving the credit. The credit is not available to employers receiving Small Business Interruption Loans. The credit is provided for wages paid after March 12, 2020 through December 31, 2020.

Delayed payment of employer payroll taxes. Taxpayers (including self-employeds) will be able to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer 6.2% Social Security (OASDI) rate). The relief isn’t available if the taxpayer has had debt forgiveness under the CARES Act for certain loans under the Small Business Act as modified by the CARES Act (see below). For self-employeds, the deferral applies to 50% of the Self-Employment Contributions Act tax liability (including any related estimated tax liability).

Net operating loss liberalizations. The 2017 Tax Cuts and Jobs Act (the 2017 Tax Law) limited NOLs arising after 2017 to 80% of taxable income and eliminated the ability to carry NOLs back to prior tax years. For NOLs arising in tax years beginning before 2021, the CARES Act allows taxpayers to carryback 100% of NOLs to the prior five tax years, effectively delaying for carrybacks the 80% taxable income limitation and carryback prohibition until 2021.

The Act also temporarily liberalizes the treatment of NOL carryforwards. For tax years beginning before 2021, taxpayers can take an NOL deduction equal to 100% of taxable income (rather than the present 80% limit). For tax years beginning after 2021, taxpayers will be eligible for: (1) a 100% deduction of NOLs arising in tax years before 2018, and (2) a deduction limited to 80% of taxable income for NOLs arising in tax years after 2017.

The provision also includes special rules for REITS, life insurance companies, and the Code Sec. 965 transition tax. There are also technical corrections to the 2017 Tax Law effective dates for NOL changes.

Deferral of noncorporate taxpayer loss limits. The CARES Act retroactively turns off the excess active business loss limitation rule of the TCJA in Code Sec. 461(l) by deferring its effective date to tax years beginning after December 31, 2020 (rather than December 31, 2017). (Under the rule, active net business losses in excess of $250,000 ($500,000 for joint filers) are disallowed by the 2017 Tax Law and were treated as NOL carryforwards in the following tax year.)

The CARES Act clarifies, in a technical amendment that is retroactive, that an excess loss is treated as part of any net operating loss for the year, but isn’t automatically carried forward to the next year. Another technical amendment clarifies that excess business losses do not include any deduction under Code Sec. 172 (NOL deduction) or Code Sec. 199A (qualified business income deduction).

Still another technical amendment clarifies that business deductions and income don’t include any deductions, gross income or gain attributable to performing services as an employee. And because capital losses of non-corporations cannot offset ordinary income under the NOL rules, capital loss deductions are not taken into account in computing the Code Sec. 461(l) loss and the amount of capital gain taken into account cannot exceed the lesser of capital gain net income from a trade or business or capital gain net income.

Acceleration of corporate AMT liability credit. The 2017 Tax Law repealed the corporate alternative minimum tax (AMT) and allowed corporations to claim outstanding AMT credits subject to certain limits for tax years before 2021, at which time any remaining AMT credit could be claimed as fully-refundable. The CARES Act allows corporations to claim 100% of AMT credits in 2019 as fully-refundable and further provides an election to accelerate the refund to 2018.

Relaxation of business interest deduction limit. The 2017 Tax Law generally limited the amount of business interest allowed as a deduction to 30% of adjusted taxable income (ATI). The CARES Act generally allows businesses, unless they elect otherwise, to increase the interest limitation to 50% of ATI for 2019 and 2020, and to elect to use 2019 ATI in calculating their 2020 limitation. For partnerships, the 30% of ATI limit remains in place for 2019 but is 50% for 2020. However, unless a partner elects otherwise, 50% of any business interest allocated to a partner in 2019 is deductible in 2020 and not subject to the 50% (formerly 30%) ATI limitation. The remaining 50% of excess business interest from 2019 allocated to the partner is subject to the ATI limitations. Partnerships, like other businesses, may elect to use 2019 partnership ATI in calculating their 2020 limitation.

Technical correction to restore faster write-offs for interior building improvements. The CARES Act makes a technical correction to the 2017 Tax Law that retroactively treats (1) a wide variety of interior, non-load-bearing building improvements (qualified improvement property (QIP)) as eligible for bonus deprecation (and hence a 100% write-off) or for treatment as 15-year MACRS property or (2) if required to be treated as alternative depreciation system property, as eligible for a write-off over 20 years. The correction of the error in the 2017 Tax Law restores the eligibility of QIP for bonus depreciation, and in giving QIP 15-year MACRS status, restores 15-year MACRS write-offs for many leasehold, restaurant and retail improvements.

Accelerated payment of credits for required paid sick leave and family leave. The CARES Act authorizes IRS broadly to allow employers an accelerated benefit of the paid sick leave and paid family leave credits allowed by the Families First Coronavirus Response Act by, for example, not requiring deposits of payroll taxes in the amount of credits earned.

Pension funding delay. The CARES Act gives single employer pension plan companies more time to meet their funding obligations by delaying the due date for any contribution otherwise due during 2020 until January 1, 2021. At that time, contributions due earlier will be due with interest. Also, a plan can treat its status for benefit restrictions as of December 31, 2019 as applying throughout 2020.

Certain SBA loan debt forgiveness isn’t taxable. Amounts of Small Business Administration Section 7(a)(36) guaranteed loans that are forgiven under the CARES Act aren’t taxable as discharge of indebtedness income if the forgiven amounts are used for one of several permitted purposes. The loans have to be made during the period beginning on February 15, 2020 and ending on June 30, 2020.

Suspension of certain alcohol excise taxes. The CARES Act suspends alcohol taxes on spirits withdrawn during 2020 from a bonded premises for use in or contained in hand sanitizer produced and distributed in a manner consistent with FDA guidance related to the outbreak of virus SARSCoV- 2 or COVID-19.

Suspension of certain aviation taxes. The CARES Act suspends excise taxes on air transportation of persons and of property and on the excise tax imposed on kerosene used in commercial aviation. The suspension runs from March 28, 2020 to December 31, 2020.

UPDATED: Ohio Passes Legislation to Extend Tax Deadlines

The Ohio Senate unanimously passed the much-anticipated House Bill 197 to address several items during the COVID-19 health and economic crisis. Some of the key tax provisions include:

  • The extension of the state and school districting income tax returns for individual filers from April 15th to July 15th to mirror the federal deadlines
  • The extension of the state-administered municipal net profit tax return for businesses filers from April 15th to July 15th to mirror the federal deadlines
  • Changing the due date for estimated taxes and waiving any penalties and interest associated with the extensions of time to file.

The full text of the legislation can be read here.


UPDATE: March 27, 2020 5:00PM

Ohio Extending Income Tax Filing and Payment Deadline

Tax Commissioner Jeff McClain today announced that Ohio will be following the federal government and IRS in extending the deadline to file and pay the state income tax.
The new deadline is July 15, an extension of approximately three months from the original deadline of April 15.

Commissioner McClain said the extension is intended to provide some relief to taxpayers and help offset some of the economic impact of the coronavirus and the public safety measures adopted to contain its spread.

As with the IRS extension, Ohio will be waiving penalty on tax due payments made during the extension. Also, thanks to a legislative agreement between Governor Mike DeWine and the General Assembly, there will be no interest charges on payments made during the extension.

The filing extension, and waiver of penalty and interest, will be available to those filing the Ohio individual income tax, the school district income tax, the pass-through entity tax, and to those taxpayers that have opted in to have the commissioner administer the municipal net profit tax through the state’s centralized filing system.

Individuals, estates, trusts and certain businesses making quarterly estimated income tax payments, have also been granted additional time to file and pay without penalty or interest. The first and second quarterly payments, normally scheduled for April 15 and June 15 for most taxpayers, have both been extended to July 15.

The Department of Taxation will be issuing more detailed guidelines in the next few days.



Tax Aspects of the CARES Act

Late in the evening on Wednesday, March 25th, Congress agreed on a stimulus package to assist with the COVID-19 pandemic.  The Coronavirus Aid, Relief, and Economic Security (CARES) Act will boost the economy with over $2 trillion in relief.  The tax provisions of the act include the following:

  • Individual stimulus checks
  • Small business loans
  • Loan Forgiveness of Paycheck Protection Loans
  • Emergency Government Disaster Loan
  • Using IRA funds for Coronavirus Costs
  • Required Minimum Distribution Waiver for 2020
  • Changes to charitable contributions
  • Exclusion from Income of Employer Payment of Employee Student Loan Debt
  • Employee Retention Credit
  • Delay of Payment of Employer Payroll Tax and Self-Employment Tax
  • Changes to the Net Operating Loss Rules

We will be posting additional information in regards to these provisions in the coming days.  In the meantime, we recommend reading ‘Congress Reaches Agreement On A Coronavirus Relief Package:  Tax Aspects of the CARES Act‘ by Tony Nitti –

CARES Act: Retirement Funding

On March 25, 2020 the Senate passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which will inject roughly $2 trillion of economic stimulus into the economy designed to provide relief from the devastating toll of the COVID-19 pandemic. The final obstacles for the CARES Act are a vote by the House of Representatives, which is expected by Friday March 27, 2020, followed by the President’s signature. Passage of the CARES Act is expected.

Within the variety of different provisions that comprise the CARES Act are special rules for use of retirement funds. Included in these rules is a waiver of the 10% penalty for early withdrawals not to exceed $100,000 from 401k plans, and also a temporary waiver of the required minimum distribution (RMD) rules for 401k plans and IRAs for the calendar year 2020. Qualifying individuals will have up to three years to repay the distributions. During those three years, 401k plan contribution limits will be increased for said individuals in order to assist them in making up for such distributions. Taxpayers electing for such distributions shall include any required amounts in gross income ratably over a three year taxable period, beginning with tax year 2020. However, taxpayers can avoid any income recognition by repaying the distribution to the retirement plan within three years of receiving it.

Section 2202. Special Rules for use of Retirement Funds, defines these withdrawals as a “coronavirus-related distribution”.  These distributions must be made:

  1. on or after January 1, 2020, and before December 31, 2020,
  2. by an individual:
    • who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC)
    • whose spouse or dependent is diagnosed with such virus or disease by such test, or
    • who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease.

Furthermore, the CARES Act will temporarily increase the limit on loans not treated as distributions from the lesser of $50,000 or 50% of the vested balance to the lesser of $100,000 or 100% of the vested balance. Repayments for such loans that are due between the enactment date of the Act and December 31, 2020 are eligible to be delayed for one year.

A link to Section 2202. Special Rules for use of Retirement Funds can be found Here.

These provisions will provide additional financial resources for individuals struggling during the ongoing pandemic. All employers with eligible plans should discuss these provisions with their corresponding 401k administrator to determine the overall impact and any action needed for employees that may utilize the changes implemented by the CARES Act during 2020.

IRA & HSA Deadlines Extended to July 15th

The following questions and answers were obtained from the IRS ‘Filing and Payment Deadlines Questions and Answers‘.

Does this relief provide me more time to contribute money to my IRA for 2019?

Yes. Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020. For more details on IRA contributions, see Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs).

Does this relief provide me more time to contribute money to my HSA or Archer MSA for 2019?

Yes. Contributions may be made to your HSA or Archer MSA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020. For more details on HSA or Archer MSA contributions, see Publication 969, Health Savings Accounts and other Tax-Favored Health Plans.

Families First Coronavirus Response Act

On March 18, 2020, President Trump signed the FFCRA into law. In general the FFCRA requires employers with less than 500 employees to provide a certain amount of paid leave to employees impacted by the coronavirus (COVID 19) and provides a tax credit to employers to mitigate the costs of providing the mandated leave. The Act is intended to ease the economic consequences of the COVID – 19 outbreak. The Act also affects employer sponsored health plans.

The Emergency Family and Medical Leave Expansion Act

The Act includes the Emergency Family and Medical Leave Expansion Act (EFMLEA) (Division C of the Act), which requires employers with fewer than 500 employees and all government entities to provide both paid and unpaid public health emergency leave for as many as 12 weeks of job protected leave to certain employees through December 31, 2020.

This emergency leave generally is available when an employee who has been employed for at least 30 days is unable to work or telework due to a need for leave to care for a son or daughter under age 18 because a school or place of care has been closed, or a childcare provider is unavailable, due to an emergency with respect to COVID-19 that is declared by a federal, state, or local authority. The first 10 days of leave may be unpaid, although a worker could choose to use other accrued leave first and then receive the required paid leave.

Employers would be required to pay employees an amount calculated on an amount not less than two-thirds of an employee’s regular rate of pay and the number of hours the employee would otherwise be normally scheduled to work, not to exceed $200 per day and $10,000 in the aggregate. As with traditional FMLA leave, EFMLA leave is job protected, and an employer must return the employee to the same or equivalent position upon their return to work. The bill outlines an exception for employers with fewer than 25 employees stating that, if the employee’s job no longer exists due to the coronavirus pandemic, employers would be required to make reasonable efforts to restore the employee to an equivalent position over a one year period.

The bill grants the Secretary of Labor the authority to issue regulations exempting: (1) certain healthcare providers and emergency responders from taking leave under the bill; and (2) small businesses with fewer than 50 employees from the requirements of the bill if it would jeopardize the viability of the business.

Emergency Paid Sick Leave Act

Under the Emergency Paid Sick Leave Act (EPSLA) (Division E of the Act), private employers with fewer than 500 employees, and public employers of any size, must provide 80 hours of paid sick time to full-time employees who are unable to work (or telework) for specified virus-related reasons. Part time employees are entitled to sick time based on their average hours worked over a 2 week period. This amount is immediately available regardless of the employee’s length of employment. The maximum amounts payable vary based on the reason for absence.

Employees who are (1) subject to a quarantine or isolation order, (2) advised by a health provider to self-quarantine, or (3) experiencing symptoms and seeking diagnosis, must be compensated at their regular rate, up to a maximum of $511 per day ($5,110 total). Employees caring for an individual described in category (1), (2), or (3), caring for a son or daughter whose school is closed or child care provider is unavailable, or experiencing a “substantially similar condition” specified by the government must receive two-thirds of their regular rate, up to a maximum of $200 per day ($2,000 total).

Employers cannot require employees to find a replacement worker or use other sick leave before this sick time. Employers may exclude health care providers and emergency responders, and the DOL can issue regulations exempting businesses with fewer than 50 employees.

EFMLEA and EPLSA Tax Credits

Any amount paid by an employer under EFMLA is eligible for a 100% refundable tax credit, equal to 100% of the qualified emergency family leave wages required to be paid by the Emergency Family and Medical Leave Expansion Act. The credit is claimed against the tax imposed by section 3111(a) (the employer portion of the Social Security taxes) each calendar quarter through the IRS Form 941. The amount of qualified leave wages taken into account for each employee is capped at $200 per day and $10,000 for all calendar quarters. If the credit exceeds the employer’s total liability for any calendar quarter, the excess credit is refundable to the employer.

The EPSLA credit for each employee is equal to the lesser of the amount of his leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 if the sick leave is to care for a family member or child whose school is closed. An additional limit applies to the number of days taken into account for all preceding calendar quarters.

The amount of the EPSLA and EFMLEA credits are increased by the portion of the employer’s “qualified health plan expenses” that are properly allocable to qualified sick leave wages or qualified family and medical leave wages. Qualified health plan expenses means amounts paid or incurred by the employer to provide and maintain a group health plan (as defined in Code Sec. 5000(b)(1), but only to the extent that such amounts are excluded from the gross income of employees by reason of Code Sec. 106(a).

In addition, the credits allowed to employers for wages paid under the EPSLA and EFMLEA are increased by the amount of the tax imposed by Code Sec. 3111(b) (the 1.45% hospital insurance portion of FICA) on qualified sick leave wages, or qualified family leave wages for which credit is allowed under Act Sec. 7001 or Act Sec. 7003.  The credits are refundable to the extent they exceed the employer’s payroll tax.

Employers don’t receive the credit if they’re also receiving the credit for paid family and medical leave established by the 2017 Tax overhaul (P.L. 115-97).

Wages paid under the EPSLA and EFMLEA are not considered wages under Code Sec. 3111(a) (employer tax-old age, survivors and disability insurance portion of FICA; 6.2%) or under Code Sec. 3221 (a) (employer’s railroad retirement tax).

Special Considerations for Self-Employed Individuals

Self-employed individuals may only take into account those days they are unable to work for qualified reasons under the Emergency Family and Medical Leave Credit or the Emergency Paid Sick Leave Credit. They must maintain documentation to be prescribed by the Treasury to establish their eligibility for the credit.

The Act also provide for similar refundable credits against the self-employment tax. It covers 100% of a self-employed individual’s sick leave equivalent amount, or 67% of the individual’s sick-leave equivalent amount if they are taking care of a sick family member, or taking care of a child following the child’s school closing for up to 10 days. The sick-leave equivalent amount is the lesser of average daily self-employment income or either (1) $511/day to care for the self-employed individual or (2) $200/day to care for a sick family member or child following a school closing, paid user the EPSLA.

Self-employed individuals can also receive a credit for as many as 50 days multiplied by the lesser of $200 or 67% of their average self-employment income paid under the EFMLEA.

Applicability Period

These rules apply only to days occurring during the period beginning on a date selected by the Secretary of the Treasury, which is during the 15-day period beginning on the date of the enactment of this Act (March 18, 2020), and ending on December 31, 2020.

Tax-Free Employee Assistance

We are living in the midst of an unprecedented health and financial crisis as the country tries to navigate unchartered waters along with the uncertainty for what lies ahead.  Fortunately, there is a little known and little used Internal Revenue Code section that was enacted in 2002 in response to the September 11th attacks of 2001 which allows employers to provide tax-free assistance to employees.  Under Section 139, “qualified disaster relief payments” are not only tax-free to the employee, but also tax deductible to the employer.

COVID-19 and Section 139

On March 13th, President Trump declared a national emergency under the Stafford Act in response to the COVID-19 pandemic sweeping across the nation.  Additionally, Notice 2020-17 published on March 18th, cited the Federally declared disaster to give the Secretary of the Treasury authority to postpone the timely payment of taxes due on April 15th  to July 15th.

Qualified Disaster Relief Payments

Qualified disaster relief payments are payments from employers to reimburse or pay employees for reasonable and necessary personal, family, living or funeral expenses incurred as a result of a qualified disaster which, in this case, is COVID-19.  In response to the pandemic, employees are being asked to work from home due to government mandates or employer policies and they may not be adequately equipped without coming out of pocket to purchase computers, scanners, additional monitors or other office supplies.

Paid time off including vacation, sick pay or family medical leave are not covered, nor is lost pay or expenses that are otherwise compensated for by insurance.

Written Plans and Record Keeping

Section 139 does not require employers to have written policies nor does it require formal record keeping typically required for reimbursed expenses.  Revenue Ruling 2003-12 recognizes that given the “extraordinary circumstances surrounding a qualified disaster, it is anticipated that individuals will not be required to account for actual expenses in order to qualify the Section 139 exclusion, provided that the amount of the payments can be reasonably expected to be commensurate with the expenses incurred.”  Despite the informality, it is always good practice for employers to develop a written plan to document who is covered, amounts paid, de minimis amounts not requiring a receipt or proof or expense, a general listing of expenses the employer will reimburse and any maximum amount allowed per employee.

Additional Questions?

ARM CPA’s tax professionals are here to help during the quickly evolving environment challenging nearly every business and its employees to quickly adapt.   Let us worry about the taxes while you are focused on leading your company to more stable ground.  Contact us a 614-486-3600 to initiate a conversation.

SBA Disaster Assistance

The U.S. Small Business Administration is offering small businesses and private, non-profit organizations loan assistance to help alleviate the economic injury caused by COVID-19.  In accordance with the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan can be applied for through the SBA.

Economic Injury Disaster Loan highlights:

  • Up to $2 million in assistance.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • The interest rate is 3.75% for small businesses and 2.75% for non-profits.
  • Long-term repayments are available to keep the payments affordable – up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.

What will my small business or private non-profit organization need in order to apply for a loan?

  • Most recent Federal tax returns for the business or organization
  • Most recent financial statements including a balance sheet and profit and loss statement for the previous 2 years
  • Personal financial statement (if sole proprietorship) and each principal owning 20% or more of the business
  • Schedule of liabilities listing all debts

Helpful Links:


Accounting Services Deemed ‘Essential’

Ohio Department of Health Director Amy Acton has signed a “stay at home” order for all Ohioans starting Monday evening, however several key businesses and services, including accounting services may continue as an essential business function.  We are striving to provide superior service to our clients during this unprecedented time.

High Deductible Health Plans Can Cover Coronavirus Costs

The IRS has announced that a health plan will not fail to be a High Deductible Health Plan (HDHP) under IRC Sec. 223(c)(2)(A) merely because it provides health benefits associated with testing for, and treatment of, the COVID-19/Coronavirus without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. Therefore, an individual with an HDHP that covers these costs may continue to contribute to a Health Savings Account (HSA). Also, as in the past, any vaccination costs continue to count as preventive care and can be paid for by the HDHP. According to the IRS, such relief is needed to avoid administrative delays or financial disincentives that might otherwise impede treatment of the coronavirus for participants in HDHPs. The relief, however, does not modify previous guidance on other HDHP requirements. Notice 2020-15 and News Release IR 2020-54.