THE WORLD HAS CHANGED, WE LOST JOBS, WE LOST BUSINESSES, WE GOT LAID OFF.
WHAT IN THE WORLD DO WE DO NOW?
Here are some basic, basic hints on what to do next. I made these very, very general guidelines. As always, with tax law, and especially THESE new laws which seem to be modified and interpreted differently each day, take this as a guide, not intended to be used in your particular case without consulting specifically with your own tax advisor.
IF YOU ARE A W2 EMPLOYEE:
If you have been laid off, AND your employer HAS NOT already filed a “PARTIAL UNEMPLOYMENT CLAIM” on your behalf (you would have received a letter from GA DEPT OF LABOR if he has), then you can file your own unemployment online at GA DEPT OF LABOR. (www.dol.georgia.gov) If your employer HAS filed the PARTIAL claim, you must respond to the letter you received from GA DOL, and set up your bank account info, following instructions they send you. Combined with the federal unemployment benefit, this should be at least $ 600 to $ 800 per week, for a total period up to four months. Note that normally, Georgia unemployment ranges only from $ 130 to $ 300 per week maximum, but the
federal government has supplemented with an additional $ 600 weekly.
IF YOU ARE A SUBCONTRACTOR (HAVE YOUR OWN BUSINESS AND DO NOT GET A W2)
GA Dept of Labor has not finalized the application process on its website, but should the week of April 13. This will allow you to file a claim online which when combined with Federal benefits could be $ 600 to $ 800 per week.
BUSINESSES, CORPORATIONS, SOLE PROPRIETORS, LLCS
The SBA (www.SBA. gov) has several options to try to work through:
ECONOMIC INJURY LOAN (EIDL)
On their website, you will find a yellow menu bar that shows “Corona Virus- Relief Options” info. If you click on that, and search for “ Coronavirus Funding Options” ,you should find an application for EIDL (which mentions up to a $ 10,000 grant). Some business info is requested regarding gross revenues, expenses, ownership, and a bank account must be supplied in order to submit. So far, none of my folks have received any email updates or monies regarding that form.
PAYCHECK PROTECTION PROGRAM (PPP)
This program was created to encourage employers to not lay off their employees by offering a loan that is forgivable, under certain circumstances, which would be used to cover the payroll for employees not layed off over the next 2 and a half months. The requested loan amount is based on the monthly average of your last year’s W2 payroll paid to employees (not subcontractors or 1099 individuals), times two and a half (so only W2 payroll is used in this category). Note that some banks actually will add payments to sub contractors into this category, but the Treasury Department has stated only W-2 employees should be in this category, so there is still confusion here.
For a very rough example, last year’s W2 payroll, including the owner’s W2, was
$100,000. To that number, we add medical insurance paid for employees, payroll taxes paid by employers, and retirement paid for employees. So if those amounts add $ 20,000, making our total $ 120,.000, this averages monthly to $ 10,000. That times two and a half is $ 25,000, which would be the loan amount. Note that only up to $ 100,000 of the owner’s annual salary is used in the computation.
Very generally, if at least 75% of this loan is used to cover the payroll, along with rent and utilities, and you don’t lay off any employees ,the loan is forgiven.
The PPP application form (Treasury Form 2483) is sent by you to your local bank (most banks restrict the application to customers who already have accounts there). After receiving that application, the bank then requests additional info, tax returns, payroll summaries, copies of W2s, organizational documents, etc. in order to process the request. So a lot of homework needs to be done.
PPP FOR THOSE WHO HAVE NO W2 EMPLOYEES (SOLE PROPRIETORS, SINGLE MEMBER LLCS)
The same PPP application would be used, except the “payroll” amount used is the actual net profit of the business. For example, the business makes $ 250,000 gross , with $ 175,000 of expenses, leaving a profit of $ 75,000. This would be the total “payroll” of the business, along with medical, retirement, etc.
So the lower your profit (which is the normal strategy for tax preparers like me), the lower the amount used to compute the average payroll. So in this example, the monthly average would be $ 6250 per month, times two and a half, so the loan amount would be $ 15,625. Remember, the "payroll amount" used for
purposes of the PPP includes only the "profit" of the business which was
reported as self-employment income to the owner. This would include the
net profit for sole proprietors, Single member LLCs, regular 1099 workers
who file taxes on Schedule C of their Form 1040. This does not include
Sub S corporations (see below).
If you are a 1099 worker, self employed, you can not receive a PPP and unemployment benefits at the same time, so it may actually be more beneficial to go through the GA Dept of Labor website, and apply for unemployment benefits, which could be $ 2400 to $ 3000 per month for up to four months at least, rather than seek a PPP loan. So far, only a few of my clients have been able to submit their PPP application and nobody has received any funding yet. Some banks have stopped temporarily taking new applications. Smaller banks may
allow you to submit the application even if you don’t have an account there. None of my folks have received responses regarding the Economic Injury Grant (EIDL) either.
PPP FOR C CORPORATIONS OR SUB S CORPORATIONS
For these taxpayers, the PPP payroll amount includes only those amounts
paid out by the corporation on which EMPLOYMENT taxes were paid. This includes
W2 payroll for the owner or other W2 employees. This DOES NOT include
owner distributions paid out in the form of pass through K1 income. Note that
a big benefit of S Corporations is the ability to minimize self employment taxes
on the pass through income (owner distributions). However, the PPP payroll
amount only includes that portion reported as wages to the owner (which is
usually a smaller amount compared to the owner distributions).
Again, this information is intended to be very, very general so let me know if more details are needed.
Good luck! It will get better!
Dan McNeely CPA