1043 N WALNUT ST
MILFORD, DE 19963

Phone: (302) 422-0108
(302) 422-3640
Fax: (302) 422-5530

Customer Portal

Payroll Tax Holiday

September 2, 2020

Dear Clients & Friends,

We hope that you are doing well during these strange times. As most of you are aware, our office has remained open and we are here to answer any questions you may have. We are working diligently preparing tax returns and assisting our clients throughout the COVID-19 pandemic. We are also addressing any new legislation that is passed in response to the pandemic and are here to advise our business clients on these new provisions.

On August 8, 2020, President Trump issued a Presidential Memorandum (Notice 2020-65) directing the Treasury Secretary to use his authority to defer withholding, deposit and payment of the employees’ portions of Social Security tax (6.2%). The notice allows employers to defer withholding on affected employees’ compensation during the last four months of 2020 and then withhold the deferred amounts during the first four months of 2021.

The deferral applies to any employee whose pretax wages or compensation during any biweekly period is generally less than $4,000. Under the Notice, the determination of application wages is to be made on a pay-period-by-pay-period basis – meaning that if the amount of compensation payable to an employee for a particular pay period is less than the threshold amount, then the payroll deferral applies to that compensation, irrespective of the amount paid to that employee in other pay periods.

While the goal is to put more money in the pockets of workers during the COVID-19 pandemic emergency for the last four months of 2020, the deferred amount will need to be repaid and will be withheld from the employee’s paychecks in addition to the normal withholding in the first four months of 2021.

The Notice places the responsibility on the employer to make payment of the deferred payroll taxes by May 1, 2021. Otherwise, the employer will be subject to penalties, interest, and additional tax. This may create a problem if an employee no longer works for the same employer in 2021. The employer won’t be able to withhold the deferred taxes if the employee no longer works for them. As of right now, the Notice does not give other guidance on this other than that the employer may make other arrangements to collect the total deferred taxes from the employee, not specifying what those arrangements should or could be.

The President has indicated that he would like the deferred taxes permanently forgiven, but it would take congressional approval to change the law, and given the highly charged political climate in Washington, that may not happen. We are advising our clients to not utilize this provision because we believe it will cause a hardship to employees in the first quarter of 2021.

We are here to assist you during this time. Please call the office if you have any questions regarding the information contained in this letter.

Sincerely,

Robert G. Starkey, CPA

DE Relief Grant

August 28, 2020

Dear Clients & Friends,

We hope that you are doing well during this time. As most of you are aware, our office is remaining open during this time and we are here to answer any questions you may have. We are working diligently preparing tax returns and assisting our clients throughout the COVID-19 pandemic.

On August 19, Governor Carney announced a new $100 million small business grant program backed by funds from the federal government and the CARES Act. The grant program, called DE Relief, is being administered by the Delaware Division of Small Business. The grant program is aimed at essential and non-essential businesses who have incurred additional expenses or reduced their resources to adapt to the new restrictions brought on by COVID-19.

The grant is a reimbursement-based grant, meaning applicants need to have either incurred a cost or plan to do so. The grant can be used for the following: purchasing equipment to make a workplace suitable for COVID-19 safety, such as personal protective equipment, plexiglass, air purifiers, etc., refinancing of debt incurred due to COVID-19, including loans from the state’s HELP program, advertising efforts undertaken as a result of the pandemic, and fixed expenses accrued during the crisis.

The Division of Small Business will begin accepting applications in early September and there will be three application rounds in September, October and November. Businesses with NAICS codes 44, 45, 6116, 6244, 71, 72, 8121, and 8129 are considered disproportionately impacted and will receive additional considerations in the grant application process, however, the grant program is open to all qualifying small businesses.

All grants issued to for-profit businesses must be closed out in 2021. In order to close out the grant, a business must submit proof of all relevant expenditures along with federal tax returns for calendar year 2020 that show at least a 7.5% revenue decrease relative to 2019. If a decrease in this amount is not shown, the grant must be paid back to the state with interest applied.

If you are interested in applying, you will need to gather your 2019 tax return, receipts for all qualifying expenses, and a copy of your Delaware business license to submit with the application.

We have attached a print out from the Division of Small Business that may answer any questions you have.

 

Sincerely,

Robert G. Starkey, CPA

Paycheck Protection Program Flexibility Act

June 24, 2020

Dear Clients & Friends,

We hope that you are maintaining a positive attitude and are staying well during these crazy times. We consider ourselves fortunate to have been considered an essential business and allowed to stay open during these past months. Remaining open allowed us to assist our clients with their tax filing requirements and also take advantage of the many stimulus programs offered by the government and SBA.

You are receiving this letter because our records indicate that you have applied and/or have been approved for the Paycheck Protection Program loan. The Paycheck Protection Program (PPP) loan was designed to provide direct incentive for small businesses to keep their workers on payroll. The most appealing aspect of this loan is the forgiveness.

On June 3, President Trump signed the Paycheck Protection Program Flexibility Act (PPPFA). The Flexibility Act is an enhancement to the CARES Act which contained the original 8-week loan forgiveness provisions. The PPPFA is designed to make it easier for borrowers to qualify for full, or almost full, forgiveness and triples the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness.

There are many enhancements in the PPPFA. PPP borrowers no longer have to use the loan funds in eight weeks, instead, they have 24 weeks to use the loan funds. This is a huge break for the PPP recipients who were fully or partially closed during the pandemic or those who have not been able to hire their staff back. Current PPP borrowers can choose to extend the 8-week period to 24 weeks, or they can use the original 8-week period. Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, 2020, a change from the previous deadline of June 30, 2020.

The PPPFA also includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The PPPFA adds new safe harbors that allow borrowers to document either: an inability to hire similarly qualified employees for unfilled positions or an inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to COVID-19 related operating restrictions. The new safe harbors could prove beneficial to certain businesses that may not be able to operate on the same level before the end of this year due to COVID-19 limitations.

Another key provision of the PPPFA is a change to the threshold for the amount of PPP funds required to be spent on payroll costs to qualify for forgiveness from 75% to 60% of the loan amount. Also, new borrowers now have five years to repay the unforgiven portion of the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.

It is important to start preparing now for completion of your PPP loan forgiveness application. Keeping good payroll records, compiling receipts and statements for utility payments, rent, and mortgage interest, keeping employee and/or shareholder insurance statements, and recording pension contributions on behalf of employees and/or shareholders.

We are here to assist you with the preparation of the PPP loan forgiveness application and provide support during this process. Please call the office if you have any questions regarding the information contained in this letter.

Sincerely,

Starkey & Company, PA

Stimulus and other information

Answered questions regarding the economic stimulus payments and other important information.

Do I have to pay tax on my stimulus payment?

No. The stimulus is an advance payment of a special 2020 tax credit. So, it is nontaxable.

I owe back taxes. Will my rebate be reduced?

No. The IRS will not apply the stimulus payment to offset past-due taxes or other federal or state debt, except for delinquent child support owed by an individual.

My wife and I had a baby in 2020. Will we get an extra $500 tax rebate?

Yes, assuming you otherwise qualify, but not this year. On your 2020 tax return, which you will file next year, you will reconcile the rebate money that you received with your actual tax situation for the year. If you otherwise qualify, you will get an extra $500 refundable credit on your 2020 tax return.

I took a required minimum distribution from my traditional IRA in February. Now that Congress has waived RMDs for 2020, can I put it back into the IRA?

Yes, and it will be treated as a tax-free rollover as along as you return the funds to the IRA by July 15 and you don’t violate the one-rollover-every-12-months rule. Normally, you have 60 days to do a tax-free rollover, but IRS extended the time period for rollovers otherwise due between April 1 and May 15 of this year to July 15.

Businesses should take note of this easing in the federal stimulus law: Employers may defer payment of their 6.2% share of Social Security tax, otherwise required to be made from March 27 through the end of the year. Half of the deferred amount is due December 31, 2021 and the other half I due December 31, 2022. Self-employed individuals can defer payment of up to 50% of their SECA tax.

An important fact to note regarding this is that special rules apply to employers that receive paycheck protection program loans. Employers who get a PPP loan may defer deposit and payment of their share of Social Security tax, without penalty, through the date that the lender issues a decision to forgive the loan. Once the employer receives that decision, the employer is no longer eligible for the payroll tax deferral. The amount that was previously deferred will continue to be deferred through the end of 2021 and 2022.

The processing of paper returns I suspended until offices reopen amid the Covid-19 pandemic.

PPP Update

May 7, 2020

Dear Clients & Friends:

Re:       Care Act Update; PPP Loan Forgiveness

You are receiving this letter because our records indicate you have applied and/or been approved for the Paycheck Protection Program loan.

On May 1, 2020, the IRS issued Notice 2020-32 which talks about the Paycheck Protection Program loans that are a part of the CARES Act.  The IRS has effectively reminded us that if something sounds to good to be true it probably is.   

Many small businesses have applied for and received PPP Loans.   The guidance in the CARES Act says that if you use the money to pay wages to employees, pay health insurance, rent, utilities, etc.  that the loan may be forgiven by the SBA.  We have been advising clients to track how the PPP loan money is used so that at the end of eight weeks they are ready to complete the application for loan forgiveness.   The CARES Act goes on to say that any part of the loan that is forgiven will be excluded from taxable income. 

The IRS confirms this treatment in Notice 2020-32, but also goes on to say that the expenses paid with the money from the PPP loan that is forgiven will not be tax deductible.    The IRS points out that in accordance with IRC Section 265, that any expenses directly associated with tax exempt income must be tracked to that income, and not used to offset other taxable income.  The purpose of this code section is to prevent a double tax benefit. 

I am fond of saying that the devil is always in the details.  Thanks to this IRS notice, the devil appears earlier than usual.  What will this mean to Businesses when they file their 2020 tax returns?   It means that we will be paying taxes on the portion of PPP loan that is forgiven.   For C-Corporations it means they will pay federal taxes of $21 for every $100 of loan forgiveness.   For S-Corporations and Partnerships the owners will pay at whatever tax bracket they are in personally.  For those in the 24% federal bracket, it will be $24 for every $100 of loan forgiveness. It will also be taxable for the state. State taxes will vary depending on the tax bracket the taxpayer is in.

Loan Forgiveness is still a good deal, just not as good as the CARES Act made it sound. The taxes discussed above related to the PPP loan forgiveness are not automatic. Year-end tax planning will be more important than ever in 2020 to successfully reduce or eliminate these taxes. Contact us if you have any questions about this information.

Sincerely,

Starkey & Company, PA

PPP Loan Forgiveness

April 27, 2020

Dear Clients & Friends,

We hope that you are doing well during this time. As most of you are aware, our office is remaining open during this time and we are here to answer any questions you may have. We are working diligently preparing tax returns and assisting our clients throughout the COVID-19 pandemic.

You are receiving this letter because our records indicate that you have applied and/or have been approved for the Paycheck Protection Program loan. The Paycheck Protection Program loan is designed to provide direct incentive for small businesses to keep their workers on payroll. The most appealing aspect of this loan is the forgiveness.

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent and utilities (at least 75% of the forgiven amount must be used on payroll). Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the 8 weeks after getting the loan. You will also owe money if you do not maintain your staff and payroll.

We are sure many of you are wondering how you can request loan forgiveness. You will need to submit an application to the lender that is servicing your loan. You will be required to include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days of receipt of the application and supporting documents. All payments are deferred for 6 months; however, interest will continue to accrue over this period.

It is important to start preparing now for your forgiveness application. Keeping good payroll records, compiling receipts and statements for utility payments, rent, and mortgage interest, keeping employee and/or shareholder insurance statements, and recording pension contributions on behalf of employees and/or shareholders.

We are here to assist you during this time. Please call the office if you have any questions regarding the information contained in this letter.

Sincerely,

Robert G. Starkey, CPA

SBA Assistance

SBA Disaster Assistance in Response to Coronavirus

The United States Small Business Association is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of COVID-19. The SBA will issue, under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by President Trump, an Economic Injury Disaster Loan declaration.

Delaware has been deemed an eligible area for SBA disaster loans.

Key facts about an Economic Injury Disaster Loan

  • The SBA will make loans available statewide to small businesses and private, non-profit organizations to help alleviate economic injury caused by the Coronavirus.
  • SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
  • The interest rate is 3.75% for small businesses.
  • The interest rate is 2.75% for non-profits.
  • The SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case by case basis, based upon each borrower’s ability to repay.
  • The SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response.

If you are a small business in the hospitality field, please refer to the prior blog regarding the Hospitality Emergency Loan Program (HELP). HELP is designed to provide financial relief for restaurants, bars and other hospitality industry businesses that employ thousands of Delawareans.

Reference: https://www.sba.gov/disaster-assistance/coronavirus-covid-19

Delaware HELP Program

Governor Carney Announces HELP Program to Support Delaware Small Businesses

Small businesses contribute and stimulate our economy by offering employment opportunities and bringing growth and innovation to the community. Unfortunately, a number of small businesses will be impacted by the Coronavirus (COVID-19) outbreak and the lingering after-effects on our economy.

As you are aware, Restaurants have been told to only provide takeout and delivery services to encourage social distancing and limit the amount of time individuals are spending in public spaces. Restaurants, bars, hotels and other hospitality-level businesses, and their employees, are among those most seriously impacted by COVID-19 in Delaware. Governor Carney recently announced the Hospitality Emergency Loan Program (HELP) to provide financial relief for restaurants, bars and other hospitality industry businesses that employ thousands of Delawareans.

The Division of Small Businesses will administer the HELP program, which works to provide businesses with no-interest loans that are capped at $10,000 per business per month to help small businesses cover rent, utilities and other unavoidable bills. The loans can not be used for personnel expenses and will have a 10-year term with payments deferred for nine months.

In order to be eligible for the HELP loans, the business must have been in operation for at least a year, have an annual revenue below $1.5 million and be in certain hospitality-connected industries as described above.

Assistance is also available for Delaware workers impacted by the Coronavirus. Governor Carney approved a number of changes to Delaware’s unemployment benefits program for the hospitality industry. The goal is for benefits to be available within a week of applying, part-time income may still be earned while collecting benefits as long as the worker can demonstrate their decreased hours and earnings, and the Department will not classify tipped workers as minimum wage earners as long as their tips are reported as wages.

Our office is here to assist you during this process. As a small business, we understand the impact of this situation and want to assist our clients throughout the process. Delawareans with questions about COVID-19 or their exposure risk can call the Division of Public Health Coronavirus Call Center at 1-866-408-1899 or 711 for individuals who are hearing impaired.

Reference:  https://news.delaware.gov/2020/03/18/governor-carney-announces-help-program-to-support-delaware-small-businesses/

Tax Deadline and Payments Deferred Due to Covid-19 Outbreak

U.S. Treasury Department and IRS Deferring Tax Deadline and Payments Due to Covid-19 Outbreak

We are sure that many of you have been concerned about how the Coronavirus outbreak is affecting your tax situation. We ensure you that our staff is still working diligently to complete your tax returns and file a timely extension when necessary. The AICPA and the U.S. Treasury Department have issued guidance regarding how the President’s emergency declaration will affect your tax situation. To keep you abreast of the latest changes, we will be updating our blog on our website as well as our Facebook page regarding any updates related to this situation. While our office is remaining fully staffed, we are mindful of limiting the office traffic. If you wish to come in to speak with one of our staff members, please call our office ahead of time to make sure that our conference room is available.

Following President Donald Trump’s emergency declaration, the U.S. Treasury Department and Internal Revenue Service issued guidance allowing all individual and other non-corporate tax filers a 90-day reprieve to file and pay their tax liability typically due on April 15 until July 15, 2020, without penalties or interest. The guidance also allows corporate taxpayers a similar deferment of up to $10 million of federal income tax payments that would typically be due on April 15 until July 15, 2020 without penalties or interest. It is important to note that we will still be able to file an extension on July 15 for those taxpayers who have paid in their tax liability but have not filed their tax return yet. We are continuing to work as we normally would and ask that our clients continue to bring their tax documents in despite the extended deadline.

As for how each state is handling the filing deadline and payments due, this could change over time. The AICPA has released a chart with the different state decisions. The chart can be found here – https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf. Delaware has not issued a deferment at this time and their offices remain open during the State of Emergency.

As always, thank you for your continued patronage. Please don’t hesitate to call us if you have any questions or concerns.

1043 N WALNUT ST
MILFORD, DE 19963

Phone: (302) 422-0108
(302) 422-3640
Fax: (302) 422-5530

Customer Portal