By Andrew Balderson, CPA the owner of Balderson & Company, an accounting and tax practice.
As American business owners and workers continue to address the challenges of living in pandemic times, it is important that everyone understand the key provisions of the legislation passed by Congress earlier in the year. These key provisions can provide significant financial assistance as we move into the final quarter of 2020.
5 Key Provisions Impacting Businesses Include –
- Paid Sick Leave and Family and Medical Leave – all employers with fewer than 500 employees must provide an employee with paid sick leave and expanded family and medical leave to the extent the employee is unable to work because of COVID-19 circumstances including illness of an employee or a family member. The paid leave provisions are effective from April 1, 2020 until December 31, 2020.
- Payroll Credits for Required Paid Sick Leave – an employer is allowed a credit against the payroll tax imposed on the employer for each calendar quarter in an amount equal to 100% of the qualified sick leave wages paid by the employer subject to certain limitations. An eligible self-employed individual is allowed a refundable tax credit for the 2020 tax year for a qualified sick leave equivalent amount.
- Employee Retention Credit – a refundable payroll tax credit is available for 50% of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose operations were fully or partially suspended due to a COVID-19 related shut down or gross receipts declined by more than 50% when compared to the same quarter in the prior year. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit regardless of whether the employer is open for business or subject to a shut down order. The credit is provided for the first $10,000 of compensation for wages paid from March 13, 2020 through December 31, 2020. Employers who take covered loans are not eligible for the credit.
- Payroll Tax Deferral – employers and self-employed individuals may defer payment of the employer share of Social Security tax they otherwise are responsible for paying with respect to their employees. The deferred tax must be paid over the following two years, with one-half of the deferred amount required to be paid by December 31, 2021 and the other half by December 31, 2022. The employee portion of Social Security is not deferred and the Medicare tax is not deferred for employers or employees.
- Net Operating Loss (NOL) – a net operating loss (NOL) is generally subject to an 80% taxable income limitation and cannot be carried back to reduce income in a prior tax year. Under the CARES Act passed in March earlier this year an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back to each of the five years preceding the year of the loss. In addition, tax years beginning before January 1, 2021, the 80% taxable income limitation is temporarily repealed.
5 Key Provisions Impacting Individuals Include –
- Retirement Plan Distributions – the 10% early withdrawal penalty is waived for COVID-19 related distributions up to $100,000 from qualified retirement plans or IRAs. Any income from an early withdrawal can be included in income ratably over a 3 year period or can be re-contributed over three years without regard to annual contribution limits.
- RMDs – required minimum distributions are waived for calendar year 2020 – if you are currently taking RMDs you are not required to do so for 2020.
- Charitable Contributions – beginning in 2020, a new above-the-line deduction up to $300 is available for individuals who do not itemize and for 2020 only, the 50% AGI limit for cash donations by individuals is suspended. If you itemize, you may deduct cash contributions up to your AGI.
- Over the Counter Medicines – Beginning in 2020, OTC medications may be purchased using HSAs, flex spending arrangements (FSAs) and Archer MSAs. This includes pain and allergy relief medications without a prescription
- Student Loans - all payments due for eligible federal students loans are suspended until September 30, 2020. During the period of suspension no interest will accrue. During the suspension period wage garnishments, refund offsets, federal benefit reductions, or any other involuntary collection activities are also suspended. If your employer provides educational assistance fringe benefits, up to $5,250 may be excluded from taxable income for employer payments to your student loan from March 27, 2020 through December 31, 2020. Note that you cannot claim a student loan interest deduction for employer-paid interest.
While these are the key provisions many Americans will be taking advantage of coming into the end of 2020 – with election day less than two months away – watch for additional provisions and an extension of some of the expired provisions that Congress continues to debate – including the extension of the extra unemployment compensation, additional stimulus payments, and the possibility of an additional round of the payroll protection program for COVID impacted businesses.
Balderson & Company
2333 N Seeley Ave, Chicago, IL 60647
312.854.7014
Andrew.Balderson@baldersonco.com
Andrew Balderson is the owner of Balderson & Company, an accounting and tax practice based in Bucktown. Prior to relocating to Chicago in the summer of 2008, he spent over 10 years with an international accounting firm in their middle market practice. He started Balderson & Company in 2012 and they currently have 4 staff members. Andrew holds a bachelor’s degree in accounting from California State University, Long Beach and a Masters of Taxation from Capital University Law School in Columbus, Ohio. Balderson & Company work with business owners and individuals on their business, accounting, and tax issues with an emphasis on strategic planning.
Waddell & Reed is not affiliated with Balderson & Company or Andrew Balderson. The information presented is for educational purposes only. Waddell & Reed and its representatives do not offer tax or legal advice. We believe it to be reliable, but it is not guaranteed by Waddell & Reed, Inc. as to the accuracy and is not intended to be used as the basis for any investment decisions. Please consult your financial advisor before making financial decisions. Waddell & Reed is not affiliated with any other entities referenced. (09/20)