The Small Business Administration (“SBA”) recently released a form Loan Forgiveness Application and instructions related to the potentially forgivable loans made under the Paycheck Protection Program (“PPP”). PPP loans are generally forgivable if, among other things, the loan proceeds are used to cover certain payroll costs incurred over the eight-week period after the loan is made (for additional information on PPP loans, see our prior blog posts here, here, here, and here). To apply for the forgiveness of a PPP loan, borrowers should complete a Loan Forgiveness Application, which can be completed in either paper or electronic form, and then send the completed application to its lender. The Loan Forgiveness Application and instructions are available here. For additional information on the Loan Forgiveness Application and other recent SBA Guidance, see the following Haynes and Boone article: SBA Issues New Guidance via Interim Final Rule on Foreign Affiliates; Releases Loan Forgiveness… Continue Reading
Use Care When Implementing CARES Act Retirement Plan Distributions – State Law and Benefit Offset Concerns
As we have previously reported on our blog here and here, the CARES Act provided relief to participants in retirement plans by allowing employers to amend their retirement plans to include certain coronavirus-related distributions and to permit increased loan amounts for certain qualified individuals. Many employers have agreed to adopt these changes, and under federal law, the treatment of these distributions is clear. But there are other issues that employers and employees should consider, including: The coronavirus-related distributions could be subject to taxation under state law, even if the employee later repays the distribution to the plan; and If employees are receiving unemployment and/or disability benefits, the coronavirus-related distributions may reduce or offset these benefits. However, the enhanced loans would not be subject to taxation and may not offset unemployment and disability benefits, which may make the enhanced loan a better option for employees who anticipate paying back the distribution.… Continue Reading
The DOL’s Employee Benefits Security Administration (“EBSA”) recently issued EBSA Disaster Relief Notice 2020-01. Notice 2020-01 applies to employee benefit plans, employers, labor organizations, and other plan sponsors, plan fiduciaries, participants and beneficiaries, and service providers subject to ERISA. Notice 2020-01 remains in effect from March 1, 2020 until 60 days after the announcement of the end of the presidentially declared national emergency due to COVID-19 (the “National Emergency”). Untimely Notice Relief Fiduciaries of ERISA plans generally have an obligation to provide notices and disclosures in accordance with the timing requirements of ERISA. However, under Notice 2020-01, the employee benefit plan and the responsible plan fiduciary will not be considered to violate ERISA for failing to timely furnish a notice, disclosure, or document that must be furnished between March 1, 2020 and 60 days after the announced end of the National Emergency, if the plan and responsible fiduciary act in… Continue Reading
Under the CARES Act, employers are eligible to claim an employee retention credit if certain conditions are met (see our prior blog post on the employee retention credit, as well as other employee benefits and executive compensation changes made by the CARES Act, here). The tax credit is equal to 50% of “qualified wages” paid to employees of up to $10,000. Qualified wages include (i) wages actually paid to covered employees (other than qualified paid sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act) and (ii) the “qualified health plan expenses” allocable to such employees. On May 11, 2020, the IRS published new FAQs clarifying how qualified health plan expenses should be calculated for purposes of the employee retention credit. Notably, the FAQs provide guidance on how to calculate such expenses when an employer sponsors more than one health plan (e.g.,… Continue Reading
The IRS recently published guidance in the form of FAQs related to the implementation of retirement plan relief available under the CARES Act. While the guidance does not resolve all of the open issues, it does provide some helpful clarifications and insight into what we may expect from future guidance. Specifically, the guidance confirms that the CARES Act provisions allowing for coronavirus-related distributions (“CRDs”) and loan relief are permissible, not required. Furthermore, the guidance points out that even if a 401(k) plan decides not to allow CRDs, if an individual meets the requirements to be a “qualified individual,” he or she may be able to treat other plan distributions as a CRD for federal tax purposes. Individuals need to consult with their personal tax advisors on these matters. Finally, alluding to what we may expect from future guidance, the CARES Act FAQs referred back to IRS Notice 2005-92 (issued on… Continue Reading
Under the CARES Act, employers who receive a Paycheck Protection Program (“PPP”) loan are ineligible to claim the employee retention tax credit. On May 6, 2020, the Small Business Administration (“SBA”) updated its FAQs on PPP loans to address situations when an employer received a PPP loan but now decides to repay it by the safe harbor deadline of May 14, 2020. Specifically, new Q/A-45 states that if such an employer repays its PPP loan by May 14, 2020, the employer will be eligible to claim the employee retention tax credit, provided the employer meets the other requirements to claim that credit. The SBA FAQs are available here.
Businesses that received a loan under the Paycheck Protection Program (“PPP”) are eligible for forgiveness of that loan if, among other things, the loan proceeds are used to cover “payroll costs” incurred over the eight-week period after the loan is made. Payroll costs, capped at $100,000 on an annualized basis for each employee (i.e., $15,384 over the eight-week period), are broadly defined to include, among other things: Salary, wages, commissions, or tips; Employee benefits costs, such as for vacation or paid family or medical leave (other than wages for which a credit is received under the Families First Coronavirus Response Act), group health care costs, retirement plan contributions, and severance benefits; and State and local taxes assessed on employee compensation. As of the date of this posting, no guidance has been issued by the IRS or the Department of Treasury to further clarify what specific items qualify as payroll costs.… Continue Reading
Although the CARES Act permitted the DOL to delay the deadline for distributing defined benefit plan Annual Funding Notices (“AFNs“), the DOL has not done so. For calendar year plans, that deadline is April 29, 2020 (because 2020 is a leap year). While AFNs generally can be distributed electronically, if there are participants or beneficiaries (including alternate payees) for whom electronic distribution is not possible, those AFNs must be mailed and postmarked no later than April 29.
CARES Act: Additional Guidance on the Interplay Between Social Security Tax Deferrals and Forgiveness of PPP Loans
In a new set of FAQs, the IRS clarifies that an employer who receives a loan under the Paycheck Protection Program (“PPP”) may also defer payment of the employer portion of Social Security taxes due on eligible wages until the employer receives notice from its PPP lender that the loan has been forgiven. Under the CARES Act, employers of all sizes may defer payment of their portion of Social Security taxes due on wages earned between March 27, 2020 and December 31, 2020, until December 31, 2021 (50% of the deferred taxes are due) and December 31, 2022 (the remaining deferred taxes are due), subject to certain restrictions. One of those restrictions is that an employer may not defer its Social Security taxes if it has taken out a PPP loan and all or any portion of the loan is forgiven. The new FAQs clarify that, once an employer receives… Continue Reading
The IRS issued Notice 2020-23 (the “Notice”), postponing various employee benefit related deadlines under the Internal Revenue Code. Under the Notice, the due dates of many tax payments and filings that would ordinarily fall on or after April 1, 2020 through July 14, 2020 were automatically extended to July 15, 2020. For example, Forms 990 that would have been due for calendar year filers on May 15, 2020 and Form 990-T that would have been due for calendar year filers on April 15, 2020 are now not due until July 15, 2020. Note that this relief will not apply to Forms 5500 for plans with calendar year plan years since those Forms 5500 are due July 30, 2020, which is currently outside of the relief period. The Notice also provides relief to any plan performing one of 44 time-sensitive actions that are listed under Revenue Procedure 2018-58. To the extent… Continue Reading