Incentives Update 04-17-2020

Nebraska Legislative Update………..

  • The 106th Nebraska Legislature’s 2nd Session convened (January 8, 2020), indefinitely adjourned (March 25, 2020), reconvened during the week of March 23rd (specific to the authorization of $83M of emergency COVID-19 funding) and is on hold again.
  • There are currently 17 days left of the 60-day session. The Speaker/Legislature intends to reconvene sometime during the 2020 calendar year.
  • Nebraska’s primary election is slated for May 12, 2020.
  • The Nebraska Legislature has NOT passed the ImagiNE Nebraska/business incentive legislation (LB720).  It is expected that, when the session does reconvene, that business incentives will be identified as one of the primary items that needs to be addressed by the body.  A possible alternative to passage, is choosing to extend the current program (Nebraska Advantage Act) past its current sunset date of 12/31/20.

For additional information about the legislative session, please go to the Nebraska Legislature link at http://www.nebraskalegislature.gov/.


COVID-19 Stimulus Summary/Update………..

Round 1 – $8.3 billion package designed to boost vaccine research, preparedness and prevention, and give seniors greater access to telehealth options through Medicaid. Enacted into law in early March 2020.

Round 2 – On March 18, 2020, the Families First Coronavirus Response was signed into law, marking the second major legislative initiative to address COVID-19.  The Act focused on temporarily requiring paid sick and family medical leave, increasing unemployment benefits, providing coronavirus testing at no cost to consumers, and increasing funds for a variety of other financial support to programs expected to see increased demand due to coronavirus.

Round 3 – The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) – $2 trillion  economic stimulus package, signed into law on March 27, 2020, covering multiple categories including, but not limited to, business, labor, tax, health care, individual and other: 

Business Provisions

  • $500 billion in loans to eligible businesses
  • $350 billion in small business loans (see editorial below)
  • $24 billion to stabilize the farm economy

Labor Provisions

  • Paid leave payment cap and advance tax credit
  • $600/week add-on to state unemployment programs
  • Create state short-term compensation programs

Tax Provisions

  • 2018 – 2020 losses can offset previous income
  • Allowable interest deductions up to 50%
  • 2-year payroll tax deferral
  • Access to tax refunds when paying taxes on overseas earnings
  • Create employee retention tax credit (see editorial below)
  • Accelerate corporate Alternative Minimum Tax (AMT) credits
  • Fix to Qualified Improvement Property

Health Care Provisions

  • $150 billion for health care facilities
  • Liability protections for personal protection equipment makers
  • Clarifies insurance coverage for tests and treatment
  • $200 million for telehealth

Individual Provisions

  • Individual rebate checks
  • Waives 10% penalty for retirement plan distributions

Other Provisions

  • $25 billion food assistance
  • $30 billion emergency education funding

Paycheck Protection Program (PPP)

1. Funding/Deadline? Various headlines indicate that $350B PPP program has reached its full funding allocation.  Current discussions are occurring, at the federal level, to earmark additional funds to the PPP program.

2. Separate Account Management. Guidelines, by both the SBA and banks, are to deposit PPP funds into a separate bank account, from normal operating accounts, in order to separate and correctly document permitted uses of the PPP program.  Recall that if permitted uses aren’t abided by, or documented, loan forgiveness will not occur. NOTE: Permitted uses, of loan proceeds under PPP, have changed from original guidance. 

3. Documentation. PLAN NOW.  When applying (in the future) for forgiveness, companies must support their permitted uses (including detailed documentation verifying payments and from what sources), COVID-19 impacts to your business, wage and health care cost calculations, and FTE calculations.  Plan now in order to ensure future reporting necessary to obtain loan forgiveness.

4. Workforce. Loan forgiveness is subject to FTEs (full-time employee equivalents) and compensation requirements.

Related to FTEs, to determine loan forgiveness, borrowers will use a ratio to divide the average number of full-time equivalent employees per month during the eight-week period following PPP loan disbursement by, at the discretion of the borrower, either:

  • The average number of full-time equivalent employees per month during the period beginning February 15, 2019 and ending on June 30, 2019; or
  • The average number of full-time equivalent employees per month during the period beginning January 1, 2020 and ending on February 29, 2020.

Seasonal employers cannot use the 2020 period for comparison, but instead must use only the period beginning on February 15, 2019 and ending on June 30, 2019.

After determining this ratio, the borrower’s loan forgiveness will be reduced if the above calculation results in some number less than one, i.e., if it has less full-time equivalent employees during the eight-week period after loan disbursement than it did during the earlier period of comparison as described above. If that number is less than one, then the forgiveness will be reduced by a proportional amount.

Borrowers may be able to avoid forgiveness penalties by restoring employee or salary reductions that already occurred between February 15, 2020 and April 26, 2020.

Related to Compensation, loan forgiveness also will be reduced for each employee whose salary or wages is decreased by more than 25% during the eight-week period after loan origination as compared to that employee’s salary and wages for the full quarter before the eight-week period. However, this reduction only applies related to employees who did not receive, during any single pay period in 2019, wages or salary at an annualized rate of pay higher than $100,000 (i.e., $8,333.33 over 12 pay periods or $4,166.67 over 24 pay periods). Therefore, borrowers need to track any pay reductions to employees who made less than $100,000 in 2019, because a 25% or more decrease of salary and wages to those individuals during the eight-week period after loan origination as compared to the full quarter before it will cause a reduction in loan forgiveness.

One key point is that borrowers can correct any reduction in employees or compensation that occurred between February 15, 2020 and April 26, 2020 to avoid penalties under the above forgiveness calculations. For reductions in employees or compensation that occurred during that period, borrowers will not have their loan forgiveness reduced if they restore those numbers in accordance with the PPP forgiveness provisions by June 30, 2020. This language was included in the CARES Act with an understanding that several employers needed to take adverse action before it was enacted. The forgiveness provisions allow those employers to amend those prior actions by June 30, 2020 to avoid suffering any reduction in forgiveness on that basis.

5. Documentation.  FORGIVENESS.  A borrower will apply for forgiveness directly with its lender. Although guidance on the application for forgiveness has not yet been promulgated, it will include:

  • Documentation verifying the employee and wage thresholds are met, including payroll tax filings reported to the IRS and state income, payroll, and unemployment insurance filings;
  • Documentation verifying other permissible expenses, including cancelled checks, payment receipts and account statements;
  • Certification from an officer of the borrower that the documentation is true and correct, and that the proceeds were made for permitted uses; and
  • Other documentation or certification the SBA or lenders determine may be appropriate

6. PPP versus Employee Retention Credit. Employers may receive a PPP loan OR the Employee Retention Credit.

Employee Retention Credit

7. Refundable Tax Credit.  Refundable payroll tax credit equal to 50% of qualified wages paid by eligible employers.   The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. (Act Sec. 2301(c)(3)(C); Act Sec. 2301(b)(1) 

8. Eligible Employers.  Employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings, OR employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis.  Governmental employers are not eligible.

9. Term. Eligible Employers may claim the Employee Retention Credit for qualified wages that they pay after March 12, 2020, and before January 1, 2021. Therefore, an Eligible Employer may be able to claim the credit for qualified wages paid as early as March 13, 2020.

10. Qualified Wages.  Qualified wages are wages (as defined in section 3121(a) of the Internal Revenue Code (the “Code”)) and compensation (as defined in section 3231(e) of the Code) paid by an Eligible Employer to employees after March 12, 2020, and before January 1, 2021. Qualified wages include the Eligible Employer’s qualified health plan expenses that are properly allocable to the wages.

11. Application of refund.  The credit is allowed against the employer portion of social security taxes under Code Sec. 3111(a) , and the portion of taxes imposed on railroad employers under section 3221(a) of the Railroad Retirement Tax Act (RRTA) that corresponds to the social security taxes under Code Sec. 3111(a).Eligible Employers will report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns, usually Form 941, Employer’s Quarterly Federal Tax Return.  

This newsletter is provided for information purposes only and should not be used by itself as legal, tax or business advice.

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