accounting, audit, business advisory and tax services
Zoom in Friday for our annual client seminar! In true 2020 fashion, we are going virtual this year. Learn about valuable insight for 2021 tax planning and get a peek of what to expect going forward based on results from the recent elections.
The SBA and Treasury Department released additional guidance related to the Paycheck Protection Program (PPP) this week. The guidance covers a simplified forgiveness application process for loans of $50,000 or less, clarification of the deferral period for PPP loan payments, and procedures required for changes of ownership of an entity that has received PPP funds.
An interim final rule was issued that provides a simplified application to be used by recipients of PPP loan of $50,000 or less, and exempts these entities from and reductions in forgiveness based on reductions in full-time equivalents, and reductions in employee salary or wages. A Journal of Accountancy article detailing the changes can be found here.
Frequently asked question No. 52 was issued that clarifies that the Paycheck Protection Flexibility Act of 2020, P.L. 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. The extension of the deferral period automatically applies to all PPP loans. A Journal of Accountancy article detailing the FAQ can be found here.
In addition, SBA issued a procedural notice that describes when a change of ownership is considered to have occurred and the responsibilities a PPP borrower continues to hold regardless of any change in ownership. The guidance clarifies requirements and may help businesses that have been trying to go through the forgiveness process quickly because of an impending transfer of ownership. A Journal of Accountancy article detailing the procedures notice can be found here.
For any questions or for clarification on any of these updates, please contact your Whalen advisor for assistance.
The SBA and Treasury released an interim final rule last week that in part addressed forgiveness of payments of rent paid to relate parties.
This rule is first mention in the guidance that related party rent will have limited forgiveness. It effectively limits forgiveness of related party rent to the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business. In the case of an owner that owns the leased property free of debt, there will be no forgiveness.
Here is the full text from the rule:
Eligibility of Certain Nonpayroll Costs for Loan Forgiveness
Question b: Are rent payments to a related party eligible for loan forgiveness?
Yes, as long as (1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and (2) the lease and the mortgage were entered into prior to February 15, 2020.
Any ownership in common between the business and the property owner is a related party for these purposes. The borrower must provide its lender with mortgage interest documentation to substantiate these payments. While rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness. PPP loans are intended to help businesses cover certain non-payroll obligations that are owed to third parties, not payments to a business’s owner that occur because of how the business is structured. This will maintain equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations.
The U.S. Chamber of Commerce has submitted a coalition letter to House Speaker Pelosi, Senate Majority Leader McConnell, and Treasury Secretary Mnuchin regarding concerns with President Trump’s recent memorandum deferring payroll tax obligations.
On August 8, 2020, President Trump signed a memorandum that defers the obligations of employers for the employee’s portion of Social Security tax for many employees from September 1, 2020 through December 31, 2020. The memorandum orders Secretary Mnuchin to provide implementation guidance for the deferral and is intended to provide additional economic relief in response to the coronavirus (COVID-19) pandemic.
However, there are questions regarding the payroll tax deferral. Specifically, if an employer defers the employee’s portion of Social Security tax for the time period indicated, will employees need to repay those taxes in 2021?
The Chamber of Commerce’s letter explains that under the current law, the memorandum will create “a substantial tax liability for employees at the end of the deferral period.” The letter notes that: “Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.”
A suspension of the employee’s portion of Social Security tax, so that employees would not need to repay the tax at a later date, “would be less challenging,” the letter adds.
The letter continues by saying many of its members see the temporary deferral as unfair to employees and furthermore “unworkable” regarding putting a system in place for employees to make such a decision.
The letter concludes by saying many of its members will likely decline to implement the payroll tax deferral and will instead continue to withhold and remit the employee’s portion of Social Security tax as required by law.
In addition to the U.S. Chamber of Commerce, the letter was signed by several businesses and associations.
At this point, the Treasury has not issued any guidance on the payroll tax deferral memorandum.
SOURCE: Thomson Reuters
There’s a new IRS form for business taxpayers that pay or receive non-employee compensation.
Beginning with tax year 2020, payers must complete Form 1099-NEC, Non-employee Compensation, to report any payment of $600 or more to a payee.
Why the new form?
Prior to 2020, Form 1099-MISC was filed to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. These payments are referred to as non-employee compensation (NEC) and the payment amount was reported in box 7.
Form 1099-NEC was reintroduced to alleviate the confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. The IRS announced in July 2019 that, for 2020 and thereafter, it will reintroduce the previously retired Form 1099-NEC, which was last used in the 1980s.
What businesses will file?
Payers of non-employee compensation will now use Form 1099-NEC to report those payments.
Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date will be February 1, 2021, because January 31, 2021, is on a Sunday. There’s no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.
Can a business get an extension?
Form 8809 is used to file for an extension for all types of Forms 1099, as well as for other forms. The IRS recently released a draft of Form 8809. The instructions note that there are no automatic extension requests for Form 1099-NEC. Instead, the IRS will grant only one 30-day extension, and only for certain reasons.
Requests must be submitted on paper. Line 7 lists reasons for requesting an extension. The reasons that an extension to file a Form 1099-NEC (and also a Form W-2, Wage and Tax Statement) will be granted are:
Need help?
If you have questions about filing Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.
