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What are the key distinctions between layoffs and furloughs?

As businesses across the country grapple with the economic fallout from the novel coronavirus (COVID-19) pandemic, many must decide whether to downsize their workforces to lower payroll costs and stabilize cash flow. If your company is contemplating such a move, you’ll likely want to consider the choice within the choice: that is, should you lay off workers or furlough them?

Basic difference

The basic difference between the two is simple. Layoffs are the ostensibly permanent termination of employees from their positions, though you can rehire some of these individuals when business improves. Meanwhile, a furlough is a mandatory or voluntary suspension from work without pay for a specified period. In most states, furloughed workers are still considered employees and, therefore, don’t receive a “final” paycheck. Check with an employment or labor attorney, however, to make sure your state’s furlough laws don’t trigger final pay requirements.

Employee benefits are another issue to explore. Reach out to your health insurance provider to see whether a furlough is a triggering event for COBRA health care coverage purposes. In addition, employees can sometimes be dropped from a group health plan if they don’t work enough hours. Ask about potential problems this might cause under the Affordable Care Act.

Applicable laws

If you’re a midsize business, and layoffs or furloughs begin to look unavoidable, it’s particularly important to coordinate the move with legal counsel. Under the Worker Adjustment and Retraining Notification (WARN) Act, employers with 100 or more employees must provide written notice at least 60 days before a plant closing or mass layoff. To have a mass layoff, at least 50 workers at a single site must be laid off for more than six months (or have their hours reduced by at least 50% in any six-month period). Because furloughs generally last for less than six months, a WARN notice wouldn’t likely be required. But you should still check with your employment attorney regarding applicable state laws and any other potential legal ramifications.

Unemployment benefits

To soften the blow, you can inform furloughed employees that they’re generally eligible for unemployment benefits — assuming their previous year’s wages are enough to qualify. Although a waiting period often applies before an employee can start receiving unemployment benefits, many states have waived these waiting periods because of the COVID-19 outbreak. Again, double-check with your attorney to fully understand the unemployment insurance rules before communicating with employees.

Formulate a strategy

Unprecedented unemployment numbers show that many businesses have had to downsize. It’s worth noting that, if you can hang on to your employees, recently passed tax relief created a refundable credit against payroll tax. (Rules and limits apply.) Our firm can help you assess your employment costs and formulate a strategy for optimally sizing your workforce.  Contact us at info@atacpa.net to schedule a call. © 2020

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IRS Outlines Procedures for Payroll Tax Credits & Rapid Refunds for Employers

FOR IMMEDIATE RELEASE
Mark Puckett, CPA
info@atacpa.net

 

IRS OUTLINES PROCEDURES FOR PAYROLL TAX CREDITS AND RAPID REFUNDS FOR EMPLOYERS MAKING FEDERALLY-MANDATED COVID-19 LEAVE PAYMENTS

 

The federal government is trying to get much-needed cash into the hands of employers and employees affected by COVID-19 as quickly as possible. To do so, it is utilizing employers’ existing payroll systems to minimize the employers’ cash flow hardship that might otherwise have occurred from having to pay new, mandatory federal paid sick and child care leave to certain employees. Specifically, the IRS has just clarified that employers can subtract the cost of the new mandated paid leave (plus the cost of keeping affected employees’ health care coverage in place during that leave) from any payroll taxes that are otherwise due to the IRS.

IRS Information Release (IR) 2020-57 (March 20, 2020) outlines the system that will promptly reimburse employers for the benefits required under the Act. IR 2020-57 also states that eligible employers are entitled to an additional tax credit based on costs to maintain health insurance coverage for the eligible employee during the mandated federal paid sick and child care leave period.

Background

Businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick and child care leave through December 31, 2020, under the Families First Coronavirus Response Act (Act) (H.R. 6201), can claim a refundable federal tax credit to recover 100% of those payments. Equivalent credits are available to self-employed individuals based on similar circumstances.

Mechanics of Tax Credit Refunds

Generally, employers are required to withhold federal income, Social Security and Medicare taxes from their employees’ paychecks. Normally, employers must timely remit to the IRS the withheld taxes, along with the employer’s share of Social Security and Medicare taxes. But the IRS will release guidance the week of March 23 allowing employers who pay mandated federal paid sick or child care leave to decrease their federal payroll tax deposit by the cost incurred. The IRS also said that the cost of providing such leave can include the cost of continuing health care coverage during the federally mandated sick and child care leave period.

Source of Tax Credit Refunds

Employers can deduct the cost of providing such leave from their total federal tax deposit amount from all employees (not just from those who take the federally mandated leave). Specifically, employers can deduct the cost of providing such leave from: (1) federal income taxes withheld from all employees’ pay; (2) the employees’ share of Social Security and Medicare taxes; and (3) the employer’s share of Social Security and Medicare taxes.

 

Self-Employed

Equivalent tax credits are available to self-employed individuals for federally mandated paid sick and child care leave. But self-employed individuals will deduct their tax credits from their estimated tax payments or can claim a refund on their federal income tax return (i.e., their 2020 Form 1040).

As a result, employers (including self-employed individuals) will have more cash in-hand (by not remitting taxes that are otherwise due) to cover the cost of providing the federal paid sick and child care leave.

Rapid Refunds

IR 2020-57 also said that if the payroll tax off-set is not sufficient to cover 100% of those costs, employers can request a refund of their tax credit for any remaining amount. The IRS expects to process such refunds within two weeks.

Examples. Here are two examples from IR 2020-57:

Example 1: If an eligible employer paid $5,000 in federally mandated paid sick or child care leave and is otherwise required to deposit $8,000 in payroll taxes, including taxes withheld from all its employees, the employer could use up to $5,000 of the $8,000 of taxes that it was otherwise going to deposit to make the qualified leave payments. The employer would only be required under the law to deposit the remaining $3,000 on its next regular deposit date.

Example 2: If an eligible employer paid $10,000 in federally mandated paid sick or child care leave and was required to deposit $8,000 in taxes, the employer could use the entire $8,000 of taxes that it was otherwise going to deposit to make qualified leave payments and could file a request for an accelerated refund for the remaining $2,000.

New Small Business Exemption

According to IR 2020-57, small businesses with fewer than 50 employees will be eligible for an exemption from the federally mandated child care leave if complying with those requirements would jeopardize the ability of the business to continue as a going concern. The exemption will be available on the basis of simple and clear criteria, which the U.S. Department of Labor will provide in emergency guidance.

Non-Enforcement Period

IR 2020-57 says that the U.S. Department of Labor will issue a temporary non-enforcement policy that provides a period of time for employers to come into compliance with the Act. For at least the initial 30 days (i.e., through April 20), the Labor Department will not bring any enforcement action against any employer for violating the Act, so long as the employer acted reasonably and in good faith to comply with the Act.

 

Continue to monitor ATA’s Covid-19 resource page for more information.
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New law helps businesses make their employees’ retirement secure

A significant law was recently passed that adds tax breaks and makes changes to employer-provided retirement plans. If your small business has a current plan for employees or if you’re thinking about adding one, you should familiarize yourself with the new rules.
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law on December 20, 2019, as part of a larger spending bill. Here are three provisions of interest to small businesses.
Employers that are unrelated will be able to join together to create one retirement plan. Beginning in 2021, new rules will make it easier to create and maintain a multiple employer plan (MEP). A MEP is a single plan operated by two or more unrelated employers. But there were barriers that made it difficult to setting up and running these plans.
Soon, there will be increased opportunities for small employers to join together to receive better investment results, while allowing for less expensive and more efficient management services. There’s an increased tax credit for small employer retirement plan startup costs. If you want to set up a retirement plan, but haven’t gotten around to it yet, new rules increase the tax credit for retirement plan start-up costs to make it more affordable for small businesses to set them up.
Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit to:
The greater of $500, or the lesser of: a) $250 multiplied by the number of non-highly compensated employees of the eligible employer who are eligible to participate in the plan, or b) $5,000.
There’s a new small employer automatic plan enrollment tax credit. Not surprisingly, when employers automatically enroll employees in retirement plans, there is more participation and higher retirement savings. Beginning in 2020, there’s a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. This credit is on top of an existing plan start-up credit described above and is available for three years. It is also available to employers who convert an existing plan to a plan with automatic enrollment.
These are only some of the retirement plan provisions in the SECURE Act. There have also been changes to the auto-enrollment safe harbor cap, nondiscrimination rules, new rules that allow certain part-timers to participate in 401(k) plans, increased penalties for failing to file retirement plan returns and more. Contact us to learn more about your situation at info@atacpa.net. © 2019
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The SECURE Act

In addition to a year-end funding bill, lawmakers finalized the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The retirement bill includes expansion of the automatic contribution to savings plans to 15% of employee pay, allows some part-time employees to participate in 401(k) plans and raises the age limit for IRA contributions from age 70½ to 72.

Also included in the retirement package are provisions aimed at Gold Star families, eliminating an unintended tax on children and spouses of deceased military family members. As with the funding bill, the Senate is expected to pass and the president to sign the bill by the end of the week.

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Tax planning for your investment portfolio

 

Watch planning for your investment portfolio video here.

Recent changes to ordinary income tax rates and tax brackets affect the tax you pay on investments.  Your long term capital gains rate can be as much as 20 percentage points lower than your ordinary income tax rate, which make long-term gains more attractive. 

If you’ve sold investments this year, and have substantial gains, then you may want to review your portfolio for unrealized losses and consider selling them before year end to offset your gains.  

Income investments 

Some types of investments produce income in the form of dividends or interest. Here are some tax consequences to consider: 

Qualified dividends are taxed at the favorable long-term capital gains tax rate rather than at your higher ordinary-income tax rate.

Interest income generally is taxed at ordinary-income rates. So stocks that pay qualified dividends may be more attractive taxwise than other income investments, such as CDs and taxable bonds. 

Capital Losses

If net losses exceed net gains, you can only deduct up to $3,000 of the losses per year.  You carry forward the excess losses until they are used.

Although tax considerations are important, don’t let them control your investment decisions. You need to consider your goals, risk tolerance, fees, and other factors related to buying and selling securities.

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Financial News Helpful Articles

Should you set up trusts in a more “trust-friendly” state?

While it’s natural to set up trusts in the state where you live, you may be losing out on significant benefits available in more “trust-friendly” states. For example, some states:

• Don’t tax trust income,
• Authorize domestic asset protection trusts, which provide added protection against creditors’ claims,
• Permit silent trusts, under which beneficiaries need not be notified of their interests,
• Allow perpetual trusts, enabling grantors to establish “dynasty” trusts that benefit many generations to come,
• Have directed trust statutes, which make it possible to appoint an advisor or committee to direct the trustee with regard to certain matters, or
• Offer greater flexibility to draft trust provisions that delineate the trustee’s powers and duties.

To take advantage of these and other benefits, review your state’s trust laws and trust-related tax laws and consider whether another state’s laws would be more favorable.

It’s also important to review both states’ rules for determining a trust’s “residence” for tax and other purposes. Typically, states make this determination based on factors such as:

• The grantor’s home state,
• The location of the trust’s assets,
• The state where the trust is administered (that is, where the trustees reside or the trust’s records are kept), or
• The states where the trust’s beneficiaries reside.

Keep in mind that some states tax income derived from in-state sources even if earned by an out-of-state trust.

To enjoy the advantages of a trust-friendly state, establish the trust in that state and take steps to ensure that your choice of residence is respected (such as naming a trustee in the state and keeping the trust’s assets and records there). It may also be possible to move an existing trust from one state to another. We can help you determine if setting up trusts in another state would help you achieve your estate planning goals.

© 2017

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Financial Institutions and Banking Financial News

Bank Wire: Beware of UDAAP

Abstract: This summary of recent developments in banking looks at how the Consumer Financial Protection Bureau has been cracking down on banking practices it views as unlawful under the Dodd-Frank Act’s regulations on unfair, deceptive or abusive acts or practices. In addition, the article cites the evidence supporting use of a fraud hotline and explains updated OCC guidance on corporate and risk governance.

Bank Wire
Beware of UDAAP
The Consumer Financial Protection Bureau (CFPB) continues to exercise its authority to crack down on banking practices it views as unlawful under the Dodd-Frank Act’s regulations on unfair, deceptive or abusive acts or practices (UDAAP). In one recent enforcement action, for example, the agency entered into a $28.5 million settlement with the Navy Federal Credit Union for alleged UDAAP violations related to its collection of delinquent accounts.
The institution’s unfair, deceptive or abusive practices included:
• Threatening legal action it didn’t intend to take or lacked the authority to take, including wage garnishment,
• Making false threats to contact service members’ commanding officers (the CFPB found that an account agreement provision permitting the credit union to do so wasn’t consented to, as required, because the clause was “buried in fine print, non-negotiable and not bargained for by consumers”), and
• Misrepresenting the impact of loan delinquencies on customers’ credit ratings.
The institution also unfairly froze customers’ electronic account access and disabled some electronic services after the accounts became delinquent.

Should your bank have a fraud hotline?
The evidence suggests that the answer is a resounding “yes” — your bank should have a fraud hotline. Employee fraud is a problem for most organizations, but it’s particularly prevalent among banks and other financial institutions. According to the Association of Certified Fraud Examiners (ACFE), banking and financial services was the most-represented sector in its 2016 Report to the Nations on Occupational Fraud and Abuse.
According to the report, the most common method of detecting fraud was via tips from employees, customers, vendors and others. In fact, the report found that fraud is more likely to be detected through a tip than as a result of an internal audit or management review. The ACFE also found that organizations with reporting hotlines are nearly twice as likely to detect fraud through tips than those without hotlines.
Telephone hotlines (used by 39.5% of organizations with formal fraud reporting mechanisms) are the most common source of tips, followed by tips submitted via email (34.1%) and tips submitted via Web-based or online forms (23.5%).

OCC guidance on corporate and risk governance
Recently, the OCC revised its Corporate and Risk Governance booklet, which is part of its Comptroller’s Handbook. Among other things, the updated booklet:
• Outlines management and board responsibilities for governing a bank’s structure, operations and risks,
• Explains enterprise risk management (ERM) and the importance of viewing risk in a comprehensive, integrated manner,
• Discusses the benefits of a risk governance framework — and the role of risk culture and risk appetite within that framework, and
• Provides guidance on strategic, capital and operational planning.
You can find the booklet at https://www.occ.treas.gov/publications/publications-by-type/comptrollers-handbook/index-comptrollers-handbook.html.
© 2016

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Construction Financial News News Tax

100% Deduction for Certain M&E Expenses

100% Deduction for Certain M&E Expenses

Generally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:

• For food and beverages furnished at the workplace primarily for employees,
• Treated as employee compensation,
• That are excludable from employees’ income as de minimis fringe benefits,
• For recreational or social activities for employees, such as holiday parties, or
• Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.

If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible.

For more information on how to take advantage of the 100% deduction, please contact us.

© 2015

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Construction Financial News News Tax

Buying a business vehicle before year-end may reduce your 2014 taxes

Buying a business vehicle before year-end may reduce your 2014 taxes

If you’re looking to reduce your 2014 taxes, you may want to consider purchasing a business vehicle before year end. Business-related purchases of new or used vehicles may be eligible for Section 179 expensing, which allows you to expense, rather than depreciate over a period of years, some or all of the vehicle’s cost.

The normal Sec. 179 expensing limit generally applies to vehicles weighing more than 14,000 pounds. The limit for 2014 is $25,000, and the break begins to phase out dollar-for-dollar when total asset acquisitions for the tax year exceed $200,000. These amounts have dropped significantly from their 2013 levels. But Congress may still revive higher Sec. 179 amounts for 2014.

Even when the normal Sec. 179 expensing limit is higher, a $25,000 limit applies to SUVs weighing more than 6,000 pounds but no more than 14,000 pounds. Vehicles weighing 6,000 pounds or less are subject to the passenger automobile limits. For 2014, the depreciation limit is $3,160.

Many additional rules and limits apply to these breaks. So if you’re considering a business vehicle purchase, contact us to learn what tax benefits you might enjoy if you make the purchase by Dec. 31.

© 2014

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Financial News

High-Stakes Policy Decisions Loom in 2013

High-Stakes Policy Decisions Loom in 2013

by Eugene A. Lugwig
January 31, 2013
Published in American Banker

An enormous number of new rules are slated to be finalized a result of Dodd-Frank, Basel III and other regulatory initiatives. The result will be the largest augmentation of the banking rulebook in history. Yet how these rules will be finalized is far from certain.

Here are a few areas where the stakes are highest:

Community Banking
Unless you have spent time working with community banks, it is hard to appreciate how profoundly modest changes in rules and supervision can affect them. Many compliance burdens have nothing to do with safety and soundness. I still remember my early years as comptroller of the currency, when a community bank CEO called to complain about the number of examiners we’d sent to his main branch. The examiners had taken up all the spaces in his parking lot, and the bank could not do business.

Of course, I solved this problem quickly by asking my examiners to park elsewhere. Other burdens are not so easily addressed, but reducing the unnecessary burden on community banks is critical to their survival. Today, community banks are larger enterprises than they were 10 years ago. They should be defined by the products they offer and their willingness and ability to serve their communities, not by their size. By this standard, and almost without exception, banks with less than $10 billion in assets are community banks. The same is true of many banks with up to $50 billion in assets.

The Basel III proposals– which create a new definition of capital and a new, U.S.-only standardized approach to the calculation of risk-weighted assets– could be profoundly disruptive to such community banks. U.S. regulators understandably want to make the Basel standardized approach more risk-sensitive, but small banks with no international presence should be exempt from it. This initiative is not required or even suggested by Dodd-Frank, and it should not be part of the sheaf of new compliance obligations facing community banks.

The Volcker Rule
Like it or not, the Volcker rule is here to stay. The issue is not whether proprietary trading should be pushed out of banking organizations– it is whether the rule allows for appropriate market-making and hedging activities, as Dodd-Frank demands.

There are two dangers here: narrowness and complexity. The final Volcker rule could be drawn too narrowly for banks to make markets for clients, facilitate the issuance of securities or engage in hedging activities that are critical to bank safety and soundness. It could also be so complex as to become a trap for the unwary, resulting in disruptive, contentious examinations and enforcement actions that make market-making and hedging activity impossible to conduct economically.

Housing
As proposed, the Basel III and Qualified Residential Mortgage rules make loans to first-time and low-income homeowners much less accessible and likely more costly. A large down-payment requirement, like the 20% one in the proposed QRM rule, would have the greatest impact on home ownership for low and moderate-income Americans. Private mortgage insurance is not incorporated as a way to bridge this problem.

This is, of course, problematic in a variety of ways. But other pending rule changes present their own implementation challenges. They include tougher servicing standards, high-cost loan appraisals, loan officer training and loan originator compensation. Taken as a whole, they are likely to force basic changes to the business models of mortgage originators and servicers.

Ring fencing and free trade
A variety of rules and proposals, both in this country and abroad, move us towards the application of national regulations, national organizational structures, in-country capital, and even national accounting treatment for global banking organizations. This balkanization is fertile ground for a potential disaster.

Notwithstanding the imbalances and shocks that have been so painfully evident in recent years, we should not lose sight of the fact that free trade, including free trade in banking and other financial services, has produced a considerable rise in global economic well-being. The U.S. has historically played a leadership role in promoting free trade. Since World War II, it has sounded the trumpet against a return to the disasters of the Smoot-Hawley Tariff Act.

However, global economic strains have pushed us ever closer to a patchwork system of territorial financial rules, which press global banks to calculate capital and liquidity on a country-by-country basis. They move institutions away from global governance and towards a territorial system that is inefficient and ultimately unsafe. The Basel accords are not always perfect, but they are far superior to isolationism. Surely we can develop a global set of rules that protect national interests yet foster trade and growth.

Shadow banking
One toxic byproduct of rules that are too complicated or unnecessarily burdensome is the growth of the shadow banking system. Virtually all recent financial reforms are aimed at banking organizations, along with a small number of nonbanks that are systemically important at a global level. This leaves ample room for nonbanks to take up financial activities without the growing compliance overlay that banks face. As a result, one of the fundamental goals of financial reform– to improve market stability– is threatened by that very same reform.

These are only a few of the many issues where major changes could occur this year. Regulators have been wise to take their time to try to get these important changes right. Because these changes are so momentous in terms of economic well-being and growth, considered and judicious efforts should take precedence over speed.

Eugene A. Ludwig is a founder and the chief executive of Promontory Financial Group LLC. He was the comptroller of the currency in the Clinton administration.
(c) 2013 SourceMedia. All rights reserved.