Our Latest Understanding of PPP Loan Program (SBA Forgivable Loan) 

The U.S. Small Business Administration on Thursday issued an interim final rule (yes. . . that is right, an interim final rule. . .) for the Paycheck Protection Program (PPP), which is offering $349 billion in forgivable loans that small businesses impacted by the Coronavirus pandemic can use to cover costs including payroll and rent.

In addition, early this morning they have issued a NEW application form –  PPP – Final (hopefully) Borrower Application Form.  It is not clear if the SBA will accept the previously issued forms or not.  Therefore, we recommend that you consider completing the new form (unless your banker has instructed you otherwise).

Due to the quickly evolving nature of this situation, and the differing approaches certain banks are taking, we recommend that you stay in close contact with your banker in case anything else changes.  At this point, they are your best source of timely information. (I do feel compelled to say that they are in a difficult situation working through this void in guidance from the SBA and Treasury, so grace is likely warranted).

A Few Clarification Points From a Read of the Interim Final Rule:
  • Average Monthly Payroll Calculation — For most companies this will be calculated on the average monthly payroll of 2019. If your company is extremely seasonal you may elect to use the average payroll between 2/15/2019 and 6/30/2019.  (The guidance is still silent on Trailing 12 versus 2019 pay – stay in close contact with your banker on this.  . . many are calculating and preparing for both scenarios.)
  • Loan interest rate has changed to 1%.
  • Term of loan has changed to 2 years with payment deferral for 6 months.
  • It appears that the other operating factors such as mortgage interest, rent and utilities could make up to, but not more than, 25% of the loan amount repaid by the government.
Thank you for trusting in HSC to assist you as we work through these difficult and uncertain times together.

For more information, contact Scott Touro, MBA at stouro@hsccpa.com.

Guidance Issued for Families First Coronavirus Response Act

This week the IRS issued additional guidance on Families First Act

Click here for an updated overview of the law and up-to-date FAQ’s.

March 19, 2020 (Original Memo Date)
Revised March 25, 2020 (Revisions/Additions from Original Memo are in RED

For all further updates please click the Frequently Asked Questions information below.
FAQ’s March 27, 2020

Click here for some helpful flowcharts regarding Families First Coronavirus Response Act.

Families First Coronavirus Response Act – Guidance Related to Required Paid Sick Leave, Extended FMLA Requirements and Payroll Tax Credits Designed to Fund These Required Payments

Introduction

Please note that the items discussed in this memo should be discussed with legal counsel.  We are attempting to provide a summary of the rules based on our understanding of them but we are not a law firm and we cannot provide legal advice. 

Also, please note that the Department of Labor, at the time of this writing, has issued limited guidance on this act and we have incorporated that guidance into this memo. Additional guidance from the DOL will be critical in fully understanding the act in more detail.

The provisions discussed below become effective April 1, 2020 and extend through the end of 2020.  These rules apply to employers with fewer than 500 employees.  This is not retroactive and the paid leave and payroll tax credits discussed in this memo cannot be taken until April 1, 2020.  April 1st  is a new date that was clarified by the DOL. It is also our current understanding that this act and the related credits are only available for paid leave for time paid starting April 1st or after and is not based on the pay date but is based on the date the time was taken off and paid.  The check date does not appear to be the relevant date to focus on but the date that the leave is taken and paid for under this act.  Example:  If someone is off on March 29th March 30th and March 31st and the employer chooses to pay them for that time and that payroll is paid on April 2nd, that time from March 29th through March 31st  is not eligible for this act and no payroll credits would be applied to it and those amounts paid would be taxed like normal paid leave.

Based on current materials available, we have created this guidance to help you understand these rules. This may be modified at a future time as more information becomes available. The Families First Coronavirus Response Act recently signed into law by President Trump is designed to do two primary things:

  1. Provide a safety-net for employees of companies with fewer than 500 employees who cannot work due to Coronavirus related situations. The Department of Labor is using language pointing to FLSA and regular FMLA rules for determining which employers need to be aggregated for purposes of this determination. We recommend consulting a labor attorney for assistance with this determination if there is any question.  Please note that this determination is not based on tax code controlled group rules and the rules for aggregating employers for this purpose is different so please consider that.
    • Please note that this act does NOT require employers to pay employees if they are not working due to a business closure, lay-offs due to slow business or furloughs.
  2. Provide employers a mechanism to be reimbursed via payroll tax credits to be claimed by reducing otherwise due and payable federal payroll and federal withheld income taxes as you submit them each pay cycle. This is the mechanism you will use to fund these new required payments to employees. An employer does not have to wait until they file their quarterly Form 941 to claim the credit but instead, it is immediately available as a reduction in otherwise payable taxes.

Safety Net for Employees Portion of Law

This summary will first focus on item one above. This act addresses providing a safety net to employees in two primary ways. They are the “Emergency Paid Sick Leave” component and the “Emergency Family and Medical Leave Expansion” component of the act, each to be discussed now.

Emergency Paid Sick Leave Component

This provision provides for up to 2 weeks of fully paid leave for the reasons discussed below for any employee of the company, and there is no waiting period to be eligible for this portion of the law. This portion of the act requires employers to provide:

  1. 80 hours of fully paid sick leave to full-time employees or
  2. Two weeks of fully paid sick leave to part-time employees, based on the average hours that the part-time employee works.

This paid leave requirement would be triggered if an employee were unable to work for one of six reasons:

  1. To self-isolate due to federal, state or local requirements. There are some unknowns in this category as to what rises to this level. If a governor of a state issues an order to close certain businesses, do the employees of that business fall into this category at that time?  We need additional guidance on this and this is a common question that is being asked. 
  2. To quarantine due to COVID-19 concerns on the advice of a health care provider.
  3. To obtain medical diagnosis or medical care if the employee has COVID-19 symptoms.
    • Please note these first three categories are referred to as “Self-Care Leave” to be discussed further below.
  4. To care for someone (very broad definition, such as Parent, Spouse, Child, Sibling, Next of Kin, Grandparent, Grandchild, Senior Citizen, Individual with Disabilities) experiencing one of the first two situations listed above.
  5. To care for the employee’s son or daughter (under age 18) if the school or daycare provider has closed or if the daycare provider is no longer available due to COVID-19.
  6. The employee is experiencing another substantially similar condition to those above.
    • Please note these last three categories are referred to as “Family Care Leave” to be discussed next.

Leave in the first three categories, called “Self-Care Leave,” has to be paid at the employee’s full normal rate of pay but that is capped at $511 per day or $5,110 total for each employee. Leave in the last three categories, called “Family Care Leave,” has to be paid at 2/3’s of their normal rate of pay but that is capped at $200 per day or $2,000 total for each employee. It is important to note that an employer CANNOT require an employee to use any existing paid leave provided by an employer before using this newly required paid leave.

The DOL can exclude certain healthcare workers and emergency responders from having to comply with this act. At this time, the definition of what qualifies as a healthcare worker is not clear. Based on what we have read, the entire company that is a health care provider is not exempt from this act, only the employees that work for that employer as a health care provider are exempt.  Support employees not in the field of providing health care are required to be covered by this act.

The DOL MAY also exempt small businesses from portions of this act with fewer than 50 employees if complying would put the business in jeopardy.  At this time, the DOL has said they will be issuing more guidance on this under 50 employee exemption but in general it only applies if following this acts rules would jeopardize the viability of the business. 

PAYROLL TIP: It is important to note that from a payroll logistics standpoint, new and separate earnings codes will need to be set up in the payroll system to be able to track each of these newly required types of payments. That will be critical to effectively quantify the dollars paid for these types of leave and will make it possible to claim the payroll tax credit to be discussed later in this article.  Do not lump this pay in with any other PTO or sick leave payments that you might otherwise make.

Emergency Family and Medical Leave Expansion Component

This provision requires employers (even those with less than 50 employees who are not normally subject to normal FMLA rules) to protect an employee’s job and pay compensation after the first two-week period has lapsed as discussed below.

This new category of leave under FMLA rules is referred to as “Public Health Emergency Leave” and requires employers to pay employees who are unable to work due to a need to care for a child under age 18 if school or daycare is unavailable due to Covid-19.  Under this rule, employers are required to:

  1. Provide “Public Health Emergency Leave” as part of FMLA leave.
  2. Provide “Public Health Emergency Leave” if needed by ANY employee who has been employed for at least 30 calendar days.
  3. Pay eligible employees at a leave rate of NO LESS than 2/3’s of their normal rate of pay. This kicks in after 10 days have passedPlease note that this portion of the law is intended to run concurrent with the emergency paid sick leave component just discussed.  If an employee qualifies for this portion of the act based on the same event that qualified them for the emergency paid sick leave pay, this portion is an additional 10 weeks.  The total would be 12 weeks of protected leave and 12 weeks of pay.  This pay is capped at $200 per day and $10,000 in total per each employee.

The DOL can exclude certain healthcare workers and emergency responders from having to comply with this act.  At this time, the definition of what qualifies as a healthcare worker is not clear. Based on what we have read, the entire company that is a health care provider is not exempt from this act, only the employees that work for that employer as a health care provider are exempt.  Support employees not in the field of providing health care are required to be covered by this act.

 The DOL MAY also exempt small businesses from portions of this act with fewer than 50 employees if complying would put the business in jeopardy.  At this time, the DOL has said they will be issuing more guidance on this under 50 employee exemption but in general it only applies if following this acts rules would jeopardize the viability of the business.  Employers with fewer than 25 employees do not have to comply with the job protection aspect of this bill, but do have to provide the pay.

It is important to note that this provision is in addition to all normal FMLA rules that already exist for employers that must comply with the existing FMLA rules.

PAYROLL TIP: It is important to note that from a payroll logistics standpoint, new and separate earnings codes will need to be set up in the payroll system to be able to track each of these newly required types of payments. That will be critical to effectively quantify the dollars paid for these types of leave and will make it possible to claim the payroll tax credit to be discussed later in this article. Do not lump this pay in with any other PTO or sick leave payments that you might otherwise make.

Funding Mechanism Available to Employers to Pay These New Wages

Now that we have addressed the safety-net components set in place to protect employees, let us turn our attention to the second component of this act, which is the mechanism put in place to fund these payments for the employer.

Any wages paid as a result of the provisions discussed above are not subject to the Employer portion of Social Security Tax (the 6.2% payroll tax). They are subject to the Employee portion of this tax, however – that must be withheld from the payments made to the employee. Because these wages are not taxed the same as normal sick pay or PTO pay, you must segregate these wages in your payroll system.

In addition to these new wages not being subject to the employer portion of Social Security tax as they are paid, this law also provides a refundable credit to be applied to reduce otherwise due and payable federal social security, Medicare and federal income tax withholdings on normal wages paid each pay period.  In essence, a credit is given to the employer that allows them not to have to pay otherwise required payroll taxes and that is the mechanism to quickly reimburse the employer for having to pay wages under this act.  If the amount of the credit is more than otherwise due and payable taxes for a pay period, there is going to be a process (not yet defined) to allow the employer to get a refund check mailed to them within 2 weeks of that submission.   Also, the process to claim the credit at the time of submitting otherwise due and payable payroll taxes is not yet defined. Finally, there is a component to this credit also for health insurance costs paid on behalf of an employee on leave under this act as well.  We need additional guidance on that at this time. As we mentioned earlier in our PAYROLL TIP sections, this is why it is important for employer to be able to separately identify compensation paid to employees as a result of this act. The amount of the credits available are as follows:

  1. For the wages paid as a result of the “Emergency Paid Sick Leave Component” (first two weeks) of the act, the credit is equal to the amount of the wages paid required by this act.
  2. For the wages paid as result of the “Emergency Family and Medical Leave Expansion Component” (after first two weeks) of the act, the credit is equal to the amount of wages paid required by this act and is capped at $10,000 per employee.
  3. In the aggregate, the sum of the credits available in number 1 and 2 can be as much as $15,100 per employee. (Up to $5,100 in wages for the first two weeks + $10,000 for the FMLA portion). Given that the employer’s share of social security tax on any individual employee is limited to $8,537.40 ($137,700*6.2%), this credit is meaningful and actually can exceed the actual social security tax paid for an individual.
  4. As mentioned earlier, there is also a component of this credit that is tied to the amount of health insurance paid by the employer on behalf of an employee out on leave under this act. At this time, we need more clarification on this part of the credit. One unknown is does it go above and beyond the caps discussed in number 3 above or is that cap inclusive of this portion for the credit?

We feel it is important that employers that may be potentially impacted by these new rules work now with their payroll systems to create the earnings codes necessary to track and tax these new types of wages correctly.

Click here for a PDF version of this article.

Please reach out to Matt Folz 812-491-1391 or Lisa Frank 812-491-1312 at Harding, Shymanski & Company, P.S.C. for further discussions related to this matter

Employee Retention Tax Credit for Employers Subject to Closure Due to COVID-19

The CARES Act implemented the Employee Retention Credit, designed to encourage businesses to keep employees on their payroll. The refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.

Does my business qualify to receive the Employee Retention Credit?

For more information, contact John Rittichier at jrittichier@hsccpa.com or Mike Vogel at mvogel@hsccpa.com.

Kentucky Enacts Law to Mirror Federal Tax Filing and Payment Requirements 

Governor Beshear signed SB 150 into law on March 30th. Included in the bill was a provision to completely mirror the federal postponement of the April 15 filing and payment due dates. A law change was necessary in order to remove the statutory imposition of late payment interest.

Applicable section of the bill:

(3) The Department of Revenue shall adhere to any declarations or changes in tax filing and payment requirements provided by the U.S. Treasury Department or the Internal Revenue Service and provide the same to taxpayers for comparable tax filing and payment requirements under Kentucky law, including an extension of time to file a return or report and an extension of time to pay any tax due with that return or report, without the imposition of penalty under KRS 131.180, 141.044, 141.305, or 141.990 on that extended payment, and notwithstanding KRS 131.175 and 141.170, without the imposition of interest under KRS 131.183 or 141.985.

For more information please contact John Rittichier, CPA at jrittichier@hsccpa.com.

SBA Forgivable Loan Applications Open Friday, April 3rd 

We have been in communication over the last several days about the Paycheck Protection Loan Program that is available as part of the CARES Act. This article is a follow up on what we discussed and to provide the tools we have developed to assist you. We recommend that you reach out to your bank immediately if you haven’t already and begin to provide the necessary information that they request.

In the meantime, we wish to provide some guidance which may be of assistance to you. Below are 4 documents:

  1. A notice from the U.S. Treasury Department Office of Public Affairs. They are indicating that this program is ready to roll out and they are ready to start lending the money starting Friday, April 3rd.
  2. A spreadsheet tool we have created to help employers calculate the amount of the loan available to them based on prior payroll costs. Calculation of loan will be made by taking an average monthly salary expense (and benefits) calculated by 2.5%.    The determination of the average monthly salary expense will be made by using 2019 numbers or a 12 month rolling period.  (IMPORTANT:   which method to use is being debated – we are hearing conflicting information and are awaiting guidance on that determination.)There is also a tab which describes the information that some (not all) banks have indicated they will require. You will want to get direct guidance from your bank regarding this, we only provide as information to assist you if you want to get a head-start.
  3. The PDF application document is directly from the SBA program and is the application we are being told will be required to be completed when you go to apply with your bank for a loan. We are providing this so you can get started on that process as well.
  4. The PDF borrower information document is information for borrowers that we felt would be helpful to you as you work through this process. It is VERY important that you read this in conjunction with completing the application.

Finally, each bank may require additional source data to support your applications so please work directly with your banking relationships for those specifics.

IMPORTANT UPDATES

Based on the SBA form that came out today and a discussion with an official close to the source, as well as new information released from the US Treasury, we have learned some new information which is different or in contradiction to the way the original bill read:

  • Based on guidance from the SBA and their instructions, the loan determination period appears to allow a calendar year 2019 calculation to determine average wages (despite what the legislation states).
  • The term of the unforgiven portion of the loan was changed (from 10 to 2 years). The interest rate changed from 4% to 0.5%.
  • Clarification that compensation over $100,000 to be excluded per employee is on “an annualized basis”. This is also defined in the definitions tab. (for example, an employee who worked for 6 months and made $80,000 should have an exclusion adjustment of $30,000).
  • There is still inconsistency within different banks (and we are receiving conflicting information from government officials) of whether 1099’s for 2019 independent contractors that would otherwise be an employee of your business qualify for determination of the loan amount and forgiveness. We recognize that this may be important to you and are hoping to receive a definitive answer over the next day or so. In the meantime, we recommend that you work with your financial institution to get their interpretation since they will ultimately approve the loan.

This is all moving very fast (the above guidance was released yesterday) and our team is diligently working to stay on top of it and to help you stay on top of it. We apologize in advance if anything changes along the way but we feel the urgency to get this information out to you now so you can get started.

Thank you for trusting in HSC to assist you as we work through these difficult and uncertain times together.

For more information, contact Scott Touro, MBA at stouro@hsccpa.com.

CARES Act Spreadsheet

The CARES Act Spreadsheet is a downloadable tool we have created to help employers calculate the amount of the loan available to them based on prior payroll costs. There is also a tab which describes the information that some (not all) banks have indicated they will require. You will want to get direct guidance from your bank regarding this, we only provide as information to assist you if you want to get a head start.

 

Business Aid and Loans: COVID-19

There is much confusion regarding the loans and aid available to companies.  In general, there are three primary options for middle market businesses:

1) SBA Economic Injury Disaster Loan Assistance (EIDL) – SBA program that existed before COVID-19 that offers up to $2 million in loans for eligible businesses.

2) Paycheck Protection Program – Created through the Coronavirus, Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program expands SBA support for businesses with loans of up to $10 million.

Borrowers are precluded from receiving SBA funding under the Paycheck Protection Program and an Economic Injury Disaster Loan (EIDL) for the same purpose (i.e., double dipping).

3) Emergency Relief Funding: Midsize Businesses – The CARES Act authorizes a relief program for losses incurred as a result of coronavirus, an amount not to exceed $500 billion, for the Treasury to make loans, loan guarantees and other investments in support of eligible businesses, states and municipalities. This includes special assistance for eligible mid-size businesses (500 to 10,000 employees). We expect guidance on this program to be published in the near future.

These three options are further described in this helpful overview provided by RSM US.

Please contact our COVID-19 Fast Response Team for any questions you may have at Covid-19ResourceTeam@hsccpa.com 

Employee Retention Tax Credit for Employers Subject to Closure Due to COVID-19

The CARES Act provides for a credit against old age, survivors and disability insurance (OASDI) taxes or Tier 1 Railroad Retirement excise taxes for businesses to use to offset the effects of COVID-19 related business issues. The credit will be available to all qualified employers that either had to suspend operations or had a significant drop in gross receipts in an applicable credit quarter.

Specifically, the credit applies to:

(1) Any employer who was carrying on a trade or business in calendar year 2020 that was suspended due to orders from an ‘appropriate government authority’ limiting commerce, travel, or group meetings due to COVID-19; OR

(2) any employer who during the period: 1) beginning with the first calendar quarter after 2019 in which it experienced a 50% or greater reduction in gross receipts in that quarter when compared against the gross receipts of the same quarter in the prior year; and 2) ending with the subsequent quarter (to which the credit was claimed) in which it had gross receipts greater than 80% of the gross receipts in the same quarter of the previous calendar year. Non-profits might also qualify for this credit under the suspension of operations rules.

This credit is generally allowed for 50% of qualified wages for each qualified employee. Qualified wages are generally any wages paid to employees during shutdowns caused by COVID-19, or in a quarter with a significant decrease in gross receipts as described above.

For companies with employees greater than 100, the employee must not be working because of either a suspension in operations or substantial drop in gross receipts. For companies with less than 100 employees, the wages must be paid because of a suspension in operations, or wages paid with respect to a quarter of significant drop in gross receipts. The important distinction is that companies with less than 100 employees will be allowed to claim the credit for wages paid to employees during an applicable quarter whether or not the business is operating.

The qualified wages include health care plan expenses that are allocable to wages in a group health plan (excluded from income of employees under section 106(a)). However, the qualified wages cannot exceed $10,000, or the amount the employee would have been paid for an equivalent time during the 30 preceding days. Qualified wages also cannot include any wages considered in the  Families First Coronavirus Response Act (FFCRA).

This credit applies to offset employment taxes after they are reduced by credits for employment of qualified veterans, research expenses for qualified small businesses, and the payroll credits for either qualified required paid sick leave or required paid family leave under the FFCRA. Any amount in excess of these limitations is refundable under sections 6401(a) and 6413(b), and treated as other refunds under section 1324. The credit does not apply to government employers, and can be elected out of by an employer. The employer must also exclude an employee if such employee is included in a work opportunity tax credit, and the employer cannot use wages used to compute the paid family and medical leave credit enacted in the 2017 Tax Cuts and Jobs Act. Finally, an employer is not eligible if they are taking a small business interruption loan.

For more information, please read  RSM’S article, or contact John Rittichier at jrittichier@hsccpa.com or Mike Vogel at mvogel@hsccpa.com for additional information.

Healthcare Practice Relief Options in CARES Act

According to the Healthcare Business Management Association (HBMA) there are a couple of provisions in the law that will be of interest to healthcare providers.

1. Healthcare Provider “lost revenue/ increased cost” Grants

The CARES Act establishes a $100 Billion Grant Fund exclusively for healthcare providers who are enrolled in the Medicare and Medicaid program. The purpose of this fund is to provide grants to practices that have experienced a reduction in revenue or an unexpected increase in costs due to the COVID-19 pandemic. The money will be available during the period of the national emergency.

Many healthcare providers have reported that they have seen a significant drop in revenue because of a drop in patient volume. Patients are concerned about coming into the office – even for routine visits. Similarly, many “elective” non-essential surgeries have been canceled leaving surgeons and anesthesiologists without income. These are not just Medicare patients, but Medicaid and commercially insured patients as well. Consequently, cash flow for many healthcare providers is a serious problem.

The Healthcare Provider Lost Revenue Grant program is intended to provide medical practices with an infusion of money that will help replace the money lost due to reduced patient volume because of the COVID-19 pandemic.

The Department of Health and Human Services (HHS) is currently working on a formula to determine how to calculate a provider’s lost revenue. This is lost revenue whether it is reduced volume for Medicare, Medicaid, or commercially insured patients.

It may take a week to 10 days for CMS to have all of the necessary applications in place to get the money flowing but these grants could be critically important for healthcare providers that are experiencing a revenue decline due to COVID-19.

More on this as it becomes available.

2. Medicare Advanced Payments

The Coronavirus Aid, Relief, and Economic Security (CARES) Act authorizes CMS to expand the current Accelerated and Advance Payment Program to a broader group of Medicare healthcare providers and suppliers. The expansion of this program is only for the duration of the public health emergency.

An accelerated/advance payment is a payment intended to provide necessary funds when there is a disruption in claims submission and/or claims processing.

CMS is authorized to provide accelerated or advance payments during the period of the public health emergency to any Medicare provider/supplier who meets the required qualifications(see below) and who submits a request to the appropriate Medicare Administrative Contractor (MAC).

To qualify for advance/accelerated payments the provider/supplier must:

  1. Have billed Medicare for claims within 180 days immediately prior to the date of signature on the provider/supplier request form,
  2. Not be in bankruptcy,
  3. Not be under active medical review or program integrity investigation, and
  4. Not have any outstanding delinquent Medicare overpayments.

Healthcare providers seeking an advanced Medicare payment can request a specific amount using a form available on each Medicare Administrative Contractor’s website. Most healthcare providers will be able to request up to 100% of the Medicare payment amount for a three-month period. The provider can continue to submit claims as usual after the issuance of the accelerated or advance payment

Repayment of the advanced payments will commence 120 days after the date of issuance of the payment and providers will have 210 days from the date of the accelerated or advance payment was made to repay the balance.

At the end of the 120-day period, the recoupment process will begin and every claim submitted by the provider will automatically be offset from the new claims to repay the advanced payment. Thus, instead of receiving payment for newly submitted claims, your outstanding advance payment balance is reduced by the claim payment amount.

For a more detailed explanation of this initiative, you can review the CMS  Advanced Payment Fact Sheet.

For more information and to get a copy of the form to request an advanced payment, go to your Medicare Administrative Contractor’s website or call your MACs Corona Virus Hotline:

For more information or for any questions, please contact Brenda Wallace at bwallace@hsccpa.com.

*Used with permission from Healthcare Business Management Association

Copyright © 2020 The Healthcare Business Management Association (HBMA), All rights reserved.