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In March of this year, all non-essential businesses in New York State were closed in an effort to slow the spread of coronavirus disease 2019 (“COVID-19”). New York State has now begun to reopen in phases under the New York Forward Plan (“NY Forward”), and the State has placed requirements and obligations on businesses that are resuming in-person operations. All regions in New York have now begun reopening. Five regions (North Country, Finger Lakes, Central NY, Mohawk Valley, and Southern Tier) entered Phase Three on or about June 12, 2020.
In order for a business to resume (or for essential businesses, continue) in-person services, the State has placed specific obligations on employers. Under NY Forward employers must: 1) read and affirm the guidelines specific to their industry, and 2) prepare a written Business Safety Plan. Failure to comply with the State’s requirements may expose business owners to liability, fines, or investigations. Business owners should familiarize themselves with the NY Forward guidelines specific to their industry, and understand the obligations imposed on them, in order to avoid adverse effects and keep employees and visitors safe.
The State has released guidelines for industries in Phases 1 through 3, and “State Wide Guidelines” for miscellaneous industries. Guidelines for Phase 4 industries, which will include Arts/Entertainment/Recreation and Education, have not yet been released. Thus far, the State has released guidelines for the following industries:
Phase 1 – Construction; Agriculture, Forestry, Fishing, and Hunting; Retail Trade; Manufacturing; Wholesale Trade; and Higher Education Research
Phase 2 – Offices; Real Estate; Essential and Phase 2 In-Store Retail; Vehicle Sales, Leases, and Rentals; Retail Rental, Repair, and Cleaning; Commercial Building Management; Hair Salons and Barbershops; Outdoor and Take-Out/Delivery Food Services
Phase 3 – Food Services (In-Person); Personal Care
State Wide Guidelines – Child Care and Day Camps; Lake and Ocean Beaches; Religious and Funeral Services; Racing Activities; Dentistry; Auto Racing; Professional Sports Training Facilities; and Public Transportation
Business owners should read the State guidelines for their industry, and are required to affirm that they have read them. The affirmation can be found at https://forms.ny.gov/s3/ny-forward-affirmation. The guidelines vary by industry, and include requirements, guidance, and suggestions for business owners. A common requirement across industries is the requirement to screen employees and, in some instances visitors/clients, for symptoms of COVID-19. The “Office” industry guidance specifically requires that business owners screen employees daily to determine if they are or have experienced symptoms, have been tested and/or diagnosed, and/or have been in close contact with someone who has experienced symptoms or been diagnosed. Business owners may also elect to conduct temperature checks on employees and/or visitors/clients/customers, but may not keep health data (i.e., the result of temperature screenings). Employers should also encourage employees to notify the employer right away if the employee begins experiencing symptoms. Further, employers should be prepared to isolate employees who begin experiencing symptoms and cannot be immediately removed from the work place.
The NY Forward guidelines for all industries require that employers notify the local health department if any employee tests positive for COVID-19, and work with the health department in contact tracing efforts. To that end, the State further recommends that employers track employee contacts with other employees, customers, visitors, etc., in order to better assist in contact tracing efforts. The NY Forward guidelines also require, among other things, that employers to maintain a social distance of at least 6 ft. between all people, require masks at all times when social distancing is not possible, decrease in person interactions wherever possible, minimize or eliminate shared equipment and items, and clean high touch surfaces frequently.
Ensuring a proper supply of personal protective equipment (PPE), is imperative to employer operations. Employers must provide employees (and customers or clients if necessary) with masks and proper hand sanitizing materials. In certain industries and for certain tasks the employer may also be required to provide gloves and other PPE such as a face shield. Under current State Orders businesses have a right to refuse service to customers who refuse to wear a mask.
Two federal agencies, the US Centers for Disease Control (CDC) and Occupational Safety and Health Administration (OSHA), have also released recommendations for reopening and operating businesses. Employers may mitigate potential liability by following the guidance of these federal agencies. Further, the NY Forward guidelines largely incorporate, and in some instances adopt, the CDC and OSHA guidelines. Unlike CDC and OSHA recommendations however, many of the State guidelines under NY Forward are required. Businesses who fail to comply with the NY Forward guidelines may be subject to fines, investigations, and potential civil liability. Local municipalities will reportedly be responsible for enforcing the guidelines, and the State has encouraged employees to report violations to the Department of Labor.
Additionally, businesses are required to prepare a Business Safety Plan. The State’s Business Safety Plan template can be found at: https://ocfs.ny.gov/main/news/2020/COVID-2020Jun08-Guidance-Reopening-Plan-Template.pdf. Alternatively, business owners may elect to prepare their own Business Safety Plan, using the State template for guidance. The Safety Plan need not be submitted to a State agency directly, but should be conspicuously posted in the workplace, and made available upon request (i.e., during an investigation). The Business Safety Plan template includes, but is not limited to, the following provisions:
People – ensure appropriate social distancing and minimize in-person capacity to the extent possible;
Places – ensure adequate supplies of and proper use of PPE and hygiene materials (i.e., hand washing or hand sanitizer stations), and make plans for communication (i.e., maintain a log of persons who have had close contact in the workplace for contact tracing purposes); and
Processes – ensure proper screening of employees, and a plan for contact tracing assistance and cleaning/disinfecting in the event someone who has access to the workplace tests positive.
As with much of the guidance regarding COVID-19, this is a rapidly evolving area of law and policy. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken. If you have specific questions regarding reopening, compliance with State guidelines, or preparing a Business Safety Plan, we would be happy to assist you. For further information regarding your particular circumstances, or if you need legal assistance, reach out to your normal contact at the firm, or contact Melissa Green (email@example.com).
On Friday, June 5, 2020, the President signed into law H.R. 7010 – The Paycheck Protection Program Flexibility Act (PPPFA). The PPPFA eases some of the requirements of the Paycheck Protection Program (PPA), which was included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed earlier this year. The PPPFA lowers the threshold for spending required on payroll expenses, increases the covered loan period, provides exceptions for businesses who are unable to rehire employees to qualify for full loan forgiveness, and sets a minimum term of 5 years for new borrowers. The changes to the PPP are summarized below.
|· Covered Period – February 15, 2020 through June 30, 2020||· Covered Period – February 15, 2020 through December 31, 2020|
|· Qualified expenses – must spend 75% on payroll, 25% on other qualified expenses, or be subject to a decrease in loan forgiveness||· Qualified expenses – must spend at least 60% on payroll, 40% on other expenses, or no loan forgiveness|
|· Term – maximum of 10 years||· Term – (for new borrowers) minimum of 5 years|
|· Payroll Tax Delay – deferment of social security taxes available only until loan is forgiven||· Payroll Tax Delay – deferment of social security taxes through December 31, 2020 (even if loan is forgiven before that date)|
|· Maintenance of Employment Levels – must maintain full-time employment and salary levels, or risk proportionate reduction of forgiveness||· Maintenance of Employment Level – creates hardship exceptions if there is an inability to rehire, hire, or return to pre-COVID-19 employment levels|
|· Payment Deferral Period – payments of principal/interest delayed for 6 months||· Payment Deferral Period – payments deferred until lender receives forgiveness funds from the government, or, if no forgiveness application is submitted, deferred for 10 months following the end of the Covered Period|
Under the CARES Act the Covered Period for a PPP loan begins on the date of origination, and ends 8 weeks later. This meant businesses had just 8 weeks to spend all of the loan funds and qualify for forgiveness. Under the PPPFA the Covered Period spans 24 weeks after the origination date, or through December 31, 2020 (whichever is earlier). There is nothing in the PPPFA which prevents a borrower from applying for forgiveness if they meet the requirements (i.e., spend the loan funds) sooner than 24 weeks.
The CARES Act required borrowers to spend 75% of loan funds on payroll expenses, and 25% on other qualified expenses in order to qualify for loan forgiveness. Borrowers who did not meet these requirements were subject to a reduction of the loan forgiveness amount. Under the PPPFA borrowers must spend 60% on payroll expenses and 40% on other qualified expenses, or the loan will not be forgiven. It has been pointed out that this new “cliff” scenario may cause hardship to borrowers, and Congress has indicated that the U.S. Small Business Association (SBA) will release additional guidelines that specify the proportional reduction of loan forgiveness still applies. However, the law as written does not allow for a proportional reduction.
The PPPFA establishes a minimum maturity time period of 5 years for new borrowers. Under the CARES Act the maximum maturity time period is 10 years. While the new 5 year minimum does not automatically apply to those who have already received PPP funds, the PPPFA specifies that borrowers and lenders may renegotiate the maturity date in light of the PPPFA.
PPP borrowers are eligible to defer payment of social security taxes for 2020, and repay such taxes at the end of 2021 and 2022 (paying 50% each year). Under the CARES Act the deferment period ends when the borrower’s loan is forgiven. The PPPFA extends the deferral period through December 31, 2020, for all borrowers, even if the loan is forgiven before that date.
Borrowers were required to maintain pre-COVID-19 employment and salary levels in order to qualify for forgiveness under the CARES Act. Specifically, the CARES Act required that any employees who were terminated after February 15, 2020, be rehired such that the borrower retained employment levels through the Covered Period. Later guidance on the CARES Act allowed employers to instead hire similarly situated individuals for the same position if they were unable to rehire certain employees. Similar rules are in place for the maintenance of employee pay rates. The PPPFA creates exceptions to the employment maintenance and salary requirement if the borrower can provide evidence that: 1) the borrower is unable to rehire individuals who were employees, and the borrower is unable to hire similarly qualified individuals; or 2) the borrower is unable to return to the same level of business activity due to compliance with requirements by various government agencies (i.e., Health and Human Services, Centers for Disease Control, and Occupational Safety and Health Administration) from March 1, 2020, through December 31, 2020, regarding standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. This is great news for businesses such as restaurants and retailers who are unable to rehire at previous staff levels due to regulations that resulted in a decrease to the business’s customer base.
Finally, the PPPFA extends the payment deferral period. Under the CARES Act borrowers’ payments were deferred for 6 months. The PPPFA requires that payments be deferred until the lender receives forgiveness funds from the government. In the event that the borrower does not apply for loan forgiveness, then the deferral period is 10 months following the end of the Covered Period. As the government is unlikely to quickly process forgiveness applications and disburse funds to lenders, experts agree that most deferral periods will likely extend well beyond 6 months.
As discussed, the SBA is expected to release additional guidance regarding the PPP that is intended to provide clarity on the PPPFA. Businesses should continue to monitor the situation as legislation and agency guidance are rapidly evolving. This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken. If you have specific questions regarding a PPP loan, application, or forgiveness, we would be happy to assist you. For further information regarding your particular circumstances, or if you need legal assistance, reach out to your normal contact at the firm, or contact Melissa Green (firstname.lastname@example.org).
On April 3, 2020, Governor Cuomo signed New York’s Fiscal Year 2021 Budget into law. The budget contains provisions that will impact businesses, including mandated paid sick leave. The law also provides the Governor and State Budget Director with the authority to revise the state’s fiscal plan throughout the coming fiscal year, as much remains uncertain in this volatile economic time. Notable tax provisions contained in the budget include: a new category for the Excelsior Tax Credit Program, prolonging the Hire-A-Vet Tax Credit Program, and a departure from recently enacted federal tax benefits. The budget also includes provisions which impact individual tax payers.
Paid Sick Leave
New York employers will soon be required to provide sick leave to employees. The temporary sick leave policies enacted in response to the COVID-19 pandemic were modified and made permanent. Employees begin accruing sick leave (at a rate of one hour per thirty hours worked) on September 30, 2020, but employers are not required to begin paying leave until January 1, 2021. Employer requirements are based on size and net income as follows:
|Less than 4 employees with net income less than $1 million||40 hours of unpaid sick leave|
|Less than 4 employees with net income greater than $1 million;|
or greater than 4 but less than 100 Employees
|40 hours of paid sick leave|
|100 or more employees||56 hours of paid sick leave|
Employers should refresh their policies and procedures to determine how they will comply with the law. Where an employer is already providing paid sick leave that meets the requirements, such policies may and should continue. Under the new law, employers are not required to pay unused sick leave upon termination of employment. However, employers should remember that New York State common law requires payment of sick leave upon termination, if it is the company’s existing policy to do so. Employers should notify employees of changes to sick leave policies, including how and when employees will accrue leave (annually or an on hourly basis) and pay upon termination. Employee policies regarding notice of sick leave and the minimum hours used should also be reviewed to ensure compliance with the new law.
Business Tax Credits
The Excelsior Tax Credit and Hire-A-Vet Programs were extended in the budget. Under the new category provided for in the Excelsior Tax Credit Program, employers with qualified “Green Projects” may be entitled to: a refundable Jobs Credit of 7.5% for new jobs, 5% for new capital investments, and 8% for qualifying research and development expenses. The Hire-A-Vet Tax Credit, which provides credit to employers equal to 10% of wages paid to a qualified veteran (up to $5,000) and 15% of wages paid to a disabled veteran (up to $15,000), was extended to include both the 2020 and 2021 hiring periods.
Recent federal legislation contained in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, included provisions for business interest deductions (increase to 50%) and net operating loss (allowing net operating losses to be carried back from 2018, 2019, and 2020 for a period of five years, and eliminating the 80% utilization limit prior to 2021). The New York State Budget decouples from the CARES Act relief, preventing full realization of these benefits for New York State taxpayers.
Individual Income Taxes
In 2016, New York State began a phased rollout of decreasing middle class income taxes, which the Governor’s office projects will result in a “$4.2 billion in annual savings for six million filers by 2025.” Under the 2020 provisions individual income tax rates will be 6.09% for taxpayers in the $43,000-$161,550 income bracket, and 6.41% percent in the $161,550-$323,200 income bracket.
Several other provisions impact individual tax payers. First, the Long-Term Care Insurance credit was decreased to $1,500 (available for those with an adjusted gross income of less than $250,000). New York State also automated the process of electing the higher deduction allowing for the use of the standard deduction automatically where it is greater than allowable itemized deductions. Similarly, where the State has the information to calculate eligibility, entitled taxpayers will automatically receive the Earned Income Tax Credit.
New York State’s Fiscal Year 2021 Budget reflects the uncertainty of economic impact as New Yorkers continue to deal with the effects of COVID-19. The budget provides room to pivot as economic impacts continue to be realized and areas of continuing need are assessed. The mandated sick leave policies will benefit employees, but should be reviewed closely by employers to ensure compliance.
Unfortunately, proposed benefits for small businesses were not included in the final budget. Likewise decision to decouple from the CARES Act tax benefits will negatively impact New York taxpayers. However, some tax benefits continued or expanded including the availability of state tax credits for qualified “Green Projects” and certain jobs, and the multi-year rollout for middle income tax cuts. The new law also continued the phased rollout of decreasing income taxes for middle class New Yorkers.
Estate planning . . . It is one of those “to-dos” in life that is so easy to put off, even when the world isn’t turned upside down. We all want “a plan,” but it never seems like the right time to tackle estate planning. And, let’s be honest, no one wants to think about their own death and what/who we will leave behind. As trying as these times are with this current pandemic, the mortality rate from COVID-19 is low. That being said, between the scare of COVID-19 and how the world has slowed down, it may be a good time to address your estate planning. In fact, despite the stay-at-home order, it is easier than ever to facilitate the signing of important estate planning documents. Governor Cuomo has issued an Executive Order permitting video execution of Wills, remote witnesses, as well as remote/video execution of powers of attorney, health care proxies, and other legal documents. The Governor’s prior Executive Order 202.7 permitted notarization by video at this time in our state. This means that clients can create, sign and update important estate planning documents without leaving the safety of their home. In addition, the remote witnessing makes it so you do not have to let other people, who could be potential risks, into your home. There are, of course, specific guidelines to follow in accordance with these executive orders. While it’s not ideal, it does make safe and effective estate planning possible for those clients that would like to proceed at this time, rather than wait any longer. In reviewing your “estate plan,” remember that it’s more than just a will. You should be reviewing and updating your health care powers of attorney, your legal or financial powers of attorney, as well a living will. If you have these documents already, ensure that your appointed agents are up to date. If you do not have these documents in place, please consider doing so. If you have questions on any of these documents please let us know. Finally, remember that many of your assets may not pass under your will and despite what your will may say, these “non-probate” assets would be distributed pursuant to beneficiary designations or by nature of how you own the asset. These include your life insurance policies, retirement accounts as well as annuities – all of these pass by beneficiary designations which should be reviewed and updated as well.
If we can be of assistance to you in starting an estate plan or updating your present estate plan, please contact us. We would be happy to meet with you ~ even if it is “remotely”.
One of our prior newsletter items addressed employers’ concerns with continuing obligations under their pension and 401(k) plans. It focused on employers’ continuing obligations to fund their defined benefit pension plans and how they could “freeze” those plans to reduce their future contribution obligations.
This newsletter will focus on 401(k) plans and, in particular, the “safe harbor” contribution feature often adopted by employers.
In a 401(k) plan, the employees have the right to defer a portion of their wages and salary by contributing “salary deferrals” to the Plan, and the employer may add its own “profit sharing” feature as well. The employees’ salary deferrals are subject to a special non-discrimination test that in practice often requires the Plan to return to the higher-paid participants some of their deferrals.
Congress encouraged the adoption of 401(k) plans by allowing employers to use one of two safe harbor (“SH“) options to avoid the special non-discrimination test. One safe harbor is a flat 3%-of-pay employer contribution for all Plan participants regardless whether the participant contributed salary deferrals. The other is a matching feature that obligates the employer to contribute as much as 4% of pay, but only for those employees who make salary deferral contributions.
IRS considered SH features very generous and put stringent rules on their use, effectively preventing an employer from making any “mid-year” change to the SH once an employer adopted it. This held true whether changing from one SH to another, or if terminating the SH feature during the year.
These rules have been modified by recent legislation under the SECURE Act of 2019 and the CARES Act of 2020. Beginning 2020, an employer who put in a 3% SH feature can suspend or terminate the safe harbor at any time during the year after giving 30 days advance notice to its employees. But, unless the employer reinstates the 3% SH before the end of the year, the employer loses the “pass” it had on the special testing for deferrals. That will normally mean that either the employer will have to refund some of the salary deferrals made by its highly-paid employees, or make a special one-time contribution that is shared among its non-highly paid employees.
If the employer changes its mind later in the year (or even during the following year), it can reinstate the 3% SH effective retroactive to the beginning of the year, provided reinstatement occurs by December 1 (for a calendar year plan). If the reinstatement occurs after December 1 (and even as late as December 31 of the following year), the retroactive reinstatement is still effective, but the contribution increases from 3% to 4%.
This ability to suspend the safe harbor contribution mid-year and reinstate later in the year only applies to the 3% SH, not to the 4% match SH. If at any time during the year the Plan included the 4% match, no mid-year change can be made that gives the employer the opportunity to reinstate. In other words, suspending the 4% SH match will mean loss of the “pass” on the special non-discrimination test for that year and each ensuing year until a SH feature is again adopted.
With COVID-19’s enormous disruption to the nation’s workforce, this new ability to modify the safe harbor obligation mid-year should prove to be helpful to those employers with safe harbor.
An employer whose 401(k) plan does not already have a 3% SH feature may adopt that feature as late as 30 days prior to the end of the Plan Year (December 1 for a calendar year plan). The prior rule required adoption 90 days prior to the end of the year. The 90-day rule still applies if the employer is adopting the 4% match safe harbor.
One of the more annoying conditions to a valid safe harbor feature is the requirement that participants receive, prior to the beginning of each year, notice of the SH feature in the Plan. Participants had to be notified of either feature at least 30 days before the beginning of the Plan Year (or when the SH was being first adopted mid-year). Certainly, advance notice of a matching contribution feature is warranted, since we can only expect that a participant’s deferral election will be affected by the existence of the match. Why advanced notice was important in the case of a 3% fixed SH contribution still escapes this author. Someone in Congress saw the irrelevance of this, and now the notice requirement in the case of the 3% SH has been eliminated.
We trust these new rules will help employers to navigate the stressful times we are experiencing today. Should you have any questions, call any of us in the Pension Department:
Many farms, especially those involved in hand-picked and other vegetable and fruit operations regularly employ migrant farm workers to assist with planting, harvesting, and other agricultural needs. The world is responding to an outbreak of respiratory disease caused by a novel (new) coronavirus that has been named “SARS-CoV-2” and the disease it causes has been named coronavirus disease 2019 (“COVID-19”). This article addresses consideration for farm’s who employ workers that are not U.S. citizens, and that are housed onsite by the farm while employed.
1. H2-A visas – availability and changes to current protocol
Migrant farm workers working under H2-A Visas may still enter the U.S. in some circumstances, but their travel depends on current restrictions from both the U.S. and their home country. The U.S. is not presently issuing new H2-A Visas.
U.S. Citizenship and Immigration Services (“USCIS”) is temporarily allowing reproduced original signatures on benefit forms and documents. The reproduction must be a copy of the original and may include a scan, photocopy, fax, or similarly reproduced document. The State Department has further advised that it is reviewing these policies and others related to Migrant Farm workers and will update regularly.
The U.S. Department of Agriculture (“USDA”) is attempting to connect available workers (those whose current contracts are expiring) with farmers in need. Additional information can be found at: https://www.farmers.gov/manage/h2a.
Effective March 20, 2002, through April 20, 2020, the U.S. has issued temporary travel restrictions which prohibit non-essential travel between the United States and Mexico. Individuals traveling to and from work, including those in the farming and agricultural industries are exempt from these restrictions. Mexican migrant farm workers who interviewed in person, and were approved for an H2-A Visa last year, may apply for a renewal this year without the need for an in person interview.
2. Safety concerns for employing and housing migrant farm workers
The United States Center for Disease Control (“CDC”), the United States Occupational Safety and Health Administration (OSHA), and other federal and state agencies have already begun issuing guidance on how to keep employees safe during the COVID-19 pandemic. The farm should take special precautions for workspaces and living quarters for workers as recommended by OSHA and other agencies.
a. CDC workplace guidance
The CDC recommends employers take steps to warn employees about the dangers of COVID-19, and to prevent the spread of illness. The CDC provides a variety of print resources to assist with these recommendations, which can be found here: https://www.cdc.gov/coronavirus/2019-ncov/communication/factsheets.html. Special recommendations include informing employees of the symptoms so that they can immediately report to their employer if they become ill, and informing employees of known ways to prevent the spread of illness (i.e., maintain a safe distance, wear personal protective equipment (“PPE”) such as face masks where appropriate, and encourage employees to wash hands).
b. OSHA workplace guidance
OSHA has released guidelines for employers based on the employee’s likelihood to contract COVID-19 at work. Many farms operate a number of agricultural operations that may require employees to have close contact with each other, or the public. Under the current OSHA guidelines, this would put a farm’s employees in the medium risk category of contracting COVID-19 while on the job.
For those in the medium risk category OSHA recommends using physical barriers to prevent contact between employees. Physical barriers include face/sneeze guards where appropriate. In the instance of agricultural work masks may be useful where sneeze guards or physical barriers between employees are not practical. OSHA also recommends minimizing face-to-face contact, removing those known to be ill where possible, and providing masks to those known to be ill in order to prevent the spread of illness. This means, at a minimum, anyone known to be ill should be wearing a mask if they will be exposed to other employees, but should be separated from other employees entirely as soon as possible.
c. Migrant farm worker housing
OSHA and the CDC have not provided guidance specifically on housing for migrant farm workers. However, farms should consider the following controls on housing in order to comply with other applicable recommendations from the CDC and OSHA. If all workers are housed in the same building an out building should be constructed to accommodate the potentially ill. Sick and well workers should not share restrooms, or other facilities, such as dining areas. If no separate space is available sick workers must be moved offsite to prevent infecting others. Sick workers should seek medical care, and should be encouraged follow the advice of their medical provider with regard to further treatment.
Many farms may encounter road blocks in obtaining assistance from migrant farm workers this season due to current national and international travel restrictions. If possible, farms should consider utilizing Mexican workers who were issued H2-A visas last year, and should seek additional advice about available workers from the USDA. Also, farms should be mindful of recommendations from OSHA, the CDC, and other agencies, in order to keep migrant farm workers safe and prevent the spread of COVID-19.
This article is intended to be for informational and discussion purposes only and is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken. For additional legal assistance specific to your farm or business reach out to your usual contact at the firm, or contact Melissa Green (email@example.com).
In this unprecedented time, we want to discuss a few other changes that come with the passing of the CARES Act, in addition to the changes discussed in our previous newsletters Coronavirus, Aid, Relief, and Economic Security (CARES) Act and Retirement Plan Update – Modified Distribution Rules under the CARES Act. We hope these changes will provide valuable information to you, our clients, in addition to your families, friends, and employees.
1) Direct Rebate Payments (“Where’s my check?”).
The most popular CARES Act topic is undoubtedly the direct rebate payment checks expected to be distributed to eligible individuals in coming weeks.
Eligible individuals may receive a credit, in the form of a direct rebate payment, up to $1,200.00 ($2,400.00 for taxpayers filing jointly), in addition to $500.00 for each qualifying child of such taxpayer. Eligible individual taxpayers who had an adjusted gross income (“AGI”) of $75,000.00 or less ($150,000.00 for joint filers; $112,500.00 for head of households) in the 2019 taxable year (2018 for eligible individuals who have not filed their 2019 tax return) will generally receive full direct rebate payments. However, for those taxpayers that exceeded the aforementioned limits, the credit is reduced by 5% of the exceeded amount.
For instance, a single taxpayer who is otherwise eligible to receive up to $1,200.00, but who’s AGI for the 2019 taxable year was $100,000.00, would be ineligible to receive a direct rebate payment, as the credit would be reduced by 5% of the exceeded AGI, totaling $1,250 ($1,200 max – $1,250 = $0 payment). However, a single taxpayer, who has not yet filed his 2019 tax return and who’s AGI in 2018 was $82,000.00, would receive a direct rebate payment of $900.00 ($1,200 max – $300 = $900.00 payment).
Nonresident aliens, individuals who qualify for a deduction on another taxpayer’s taxable return (i.e., a college student whose parents claimed her as a dependent on their joint tax return filing), and trusts and estates do not qualify for a direct rebate payment.
Otherwise eligible individuals will not receive a direct rebate payment unless such taxpayer, his/her spouse (if filing jointly), and child’s (if eligible for a child credit) valid social security number is included on the taxpayer’s 2019 (or 2018 if applicable) tax return.
The Internal Revenue Service (“IRS”) has released additional information on payments in the last few days.
2) Charitable Deductions/Limits.
The CARES Act provides a new above-the-line deduction for charitable contributions and temporarily modifies charitable deduction limits.
To qualify for the new above-the-line deduction, the charitable contribution must be made in cash by taxpayers who elect not to itemize. If the taxpayer qualifies, a deduction of up to $300.00 may be made to a qualified charity (not including a donor-advised fund). Eligible taxpayers may take this deduction in taxable years beginning after December 31, 2019.
The CARES Act also temporarily suspends and replaces the charitable deduction limits with more generous limitations on certain cash charitable contributions made in the 2020 taxable year. To qualify for these modified limits, charitable contributions must be made in cash during the 2020 calendar year to a qualified charitable organization (not including a donor-advised fund) and the taxpayer must elect, or in other words opt-in, to use the modified limitations. For individuals, the CARES Act now allows a deduction up to 100% of the individual’s AGI. For corporations, the CARES Act removes the 10% AGI limit and replaces it with a 25% AGI limit.
Charitable deduction limits have also been temporarily increased for food contributions to qualified charitable organizations.
3) Single-Employer Defined Benefit Plan Minimum Funding Rules.
Good news for Plan Sponsors of single-employer defined benefit plans with minimum funding requirements. The due date for minimum required contributions (including quarterly contributions) otherwise due during the 2020 calendar year has been extended to January 1, 2021. However, payment at such time will be adjusted to include interest (using the effective rate under the Plan) accrued from the original due date to the payment date.
Plan Sponsors may also elect to treat the Plan’s Adjusted Funding Target Attainment Percentage (“AFTAP”) for the last Plan Year ending before January 1, 2020, as the AFTAP for Plan Years which include calendar year 2020.
4) Foreclosure Moratoriums and Mortgage Payment Relief.
Borrowers experiencing a financial hardship due to the COVID-19 emergency may request forbearance on federally backed mortgage loans (regardless of delinquency status) by submitting a request to their servicer and attesting they are experiencing a financial hardship during the COVID-19 emergency. This applies to mortgages loans secured on residential real property (including individual units of condominiums and cooperatives; and properties comprising of up to 4 dwelling units). Forbearance shall be granted up to 6 months, and can be extended an additional 6 months at the borrower’s request. The servicer may not require additional documentation other than the borrower’s attestation of financial hardship due to COVID-19 and may not charge additional fees, penalties, or interest beyond the amounts scheduled or calculated as if the mortgage was paid timely and full under the terms of the mortgage contract.
In addition, servicers of a federally backed mortgage loan may not initiate foreclosure (judicial, non-judicial, judgement, or order of sale) or execute a foreclosure-related eviction or sale until at least May 17, 2020.
Multifamily borrowers (borrowers of a residential mortgage loan secured by a property comprising of 5+ dwelling units) with a federally backed multifamily mortgage loan may also request forbearance, so long as the borrower was current on its payments as of February 1, 2020, submits an oral or written request to its servicer, and affirms he/she/it is experiencing financial hardship during the COVID-19 emergency. The forbearance period for multifamily borrows is up to 30 days, which can be extended up to 2 additional 30-day periods upon request at least 15 days prior to the end of the original 30-day forbearance period. During the period of forbearance, multifamily borrowers may not evict a tenant or issue a notice to vacate solely for missed rent or other fees and charges, or charge tenants any late fees, penalties, or other charges for late rent payments.
Finally, the CARES Act places a 120-day nationwide eviction moratorium for renters for nonpayment of rent to landlords who have federally backed mortgages, regardless of whether the borrower requests forbearance as described above. During this time period landlords are forbidden to charge any late fees or penalties for delinquent rent payments.
5) REAL ID Extended Enforcement Deadline.
The CARES Act includes some relief for those of you who have not yet obtained your REAL Identification Card (“REAL ID”). The CARES Act directs the Department of Homeland Security (“DHS”) to extend the enforcement date to at least September 30, 2021. DHS has since announced the new enforcement deadline is October 1, 2021.
As the effects of the novel coronavirus (COVID-19) continue to escalate, many small businesses are looking to push forward. Relief and significant aid have been provided, and laws are changing at a rapid pace to help protect employees, families, and the public. Employers who are fortunate to continue their businesses should be aware of evolving recommendations regarding workplace standards and the availability of relief. Employers who have been forced to reduce or cease operations, or who fear they will be in the near future, should be aware of important federal and state laws that require providing notification to affected employees, as well as benefits that may be available to those who must be laid off.
Small business owners, who are still in operation, have a variety of new regulations to keep up with and relief available to assist in this uncertain economic time. Employers should monitor and follow the recommendations and regulations being issued by the U.S. Centers for Disease Control and Prevention (CDC) and Department of Labor (DOL). For example, the CDC recommends educating employees about COVID-19, and provides a variety of resources to employers to properly protect and inform their workforce. Additionally, businesses operating with employees onsite should review the Occupational Safety and Health Administration’s (OSHA’s) guidance on preparing the workplace for COVID-19. Importantly, OSHA recommends businesses create a disaster plan in anticipation of a reduction in workforce due to illness, or the need to care for others who are ill.
Small businesses with continuing operations should ensure several housekeeping measures to ensure longevity of operations given current obstacles. Employers should review or establish succession plans, determine essential functions, and cross train where possible. Further, small business owners should review any applicable insurance policies to determine in what instances the business or employees qualify for benefits (i.e., business disruption, worker’s compensation, and disability). Most importantly, employers should establish policies and procedures to protect workers and stop the spread of illness. Employees should be informed of protocols once established.
Recent federal and state legislation has provided small businesses with relief, and heightened obligations. The Coronavirus Aid Relief and Economic Security (CARES) Act provides low interest loans (a portion of which may be forgivable), grants, and tax benefits to small businesses. Applications for programs under the CARES Act and additional information are available from the Small Business Association (SBA). New York State and the federal government have also recently enacted legislation that requires employers of a certain size to provide employees with paid or unpaid leave to self-isolate or quarantine, or to care for themselves or family members who have contracted COVID-19. Employers should review state and federal resources for additional information regarding new paid time off requirements.
Many businesses must temporarily or permanently halt operations in light of decreased revenue and other challenges presented by the current pandemic. Federal and state Worker Adjustment and Retraining Notifications (WARN) Acts require many businesses to provide advance notice of layoffs. Although exceptions are made when advanced notice is not possible, which will typically be the case for businesses that must cease operations now, employers must still provide as much notice as possible to employees, and the applicable government agency. Employers should also be prepared to field questions regarding benefits available to terminated employees, payment of paid time off or severance benefits, and the likelihood of rehire.
Employees who are laid off will undoubtedly be looking for information. Employers should review existing company policies regarding payment of vacation time and other paid time off upon termination of employment. Further, individual employment contracts should be reviewed in preparation of termination. Employers should also inform employees about available unemployment benefits. Seasonal employees, who are not being asked to return for the coming season, should apply for benefits even if their current benefits have lapsed, as current legislation allows for a significant expansion of benefits. Further, small business owners, many of whom did not previously qualify for unemployment, may qualify for unemployment under the current, temporary, federal expansion of benefits. It should be noted that the unemployment process is exceptionally slow given the surge in unemployment nationally. Those who apply should be reassured that unemployment benefits are typically retroactive to the last date of employment.
The impacts of COVID-19 are being felt around the world. Small business owners are not alone in their attempts to keep going in the face of adversity, or provide care and compassion in the event of unfortunate, but often necessary, closings. Reducing the spread of illness, and keeping each other safe and well will likely remain top priority for the foreseeable future. Unfortunately, social distancing measures have created physical barriers between us. Fortunately, technological support, ingenuity, and good old-fashioned American grit have allowed us to press on in exciting and heartwarming ways. Laws and regulations are rapidly changing, so it is imperative that employers continue to consult professional resources including legal and financial professionals, and government and agency guidance. Clients who have further questions or specific concerns are encouraged to reach out to their regular contact at the firm (either by phone or email) or to contact Melissa Green (firstname.lastname@example.org).
U.S. Centers for Disease Control and Prevention
Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019 (COVID-19) – https://www.cdc.gov/coronavirus/2019-ncov/community/guidance-business-response.html
Resources for Businesses and Employers – https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/businesses-employers.html
Guidance on Preparing Workplaces for COVID-19 – https://www.osha.gov/Publications/OSHA3990.pdf
U.S. Small Business Association
Small Business Guidance & Loan Resources – https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
Paycheck Protection Program (PPP) Sample Application Form – https://www.sba.gov/document/sba-form–paycheck-protection-program-ppp-sample-application-form
Paid Leave Legislation
U.S. Families First Coronavirus Response Act: Employee Paid Leave Rights – https://www.dol.gov/agencies/whd/pandemic/ffcra-employee-paid-leave
New York State New Paid Leave for COVID-19 – https://paidfamilyleave.ny.gov/COVID19
WARN Act Information
U.S. Department of Labor Employer’s Guide to Advance Notice of Closings and Layoffs – https://www.dol.gov/sites/dolgov/files/ETA/Layoff/pdfs/_EmployerWARN2003.pdf
New York State Information Regarding Worker Adjustment and Retraining Notifications – https://labor.ny.gov/workforcenypartners/warn/warnportal.shtm
New York State How to file a claim for Unemployment Insurance Benefits – https://labor.ny.gov/ui/how_to_file_claim.shtm
This article briefly summarizes three relevant portions of the CARES Act – 1) the Paycheck Protection Program (“PPP”), 2) Emergency Economic Injury Disaster Loans (“EIDL’s”) and Grants, and 3) Tax Benefits. Additional provisions of the CARES Act, not covered in this article, include grant funds for Entrepreneurial Development, increased unemployment benefits, individual subsidies for Americans, Tax Treatment of Coronavirus-Related Distributions, and many others.
Guidelines from the governmental agencies and banks implementing the programs are expected over the next days and weeks to clarify the availability of benefits and application requirements under these programs. As you read through the following and consider your specific circumstances, contact us, your accountant and bank representatives for the most updated information, and do not delay in making your application for benefits.
Qualified individuals and entities may take out loans under the PPP and EIDL programs, as long as the funds are not used for the same purpose (no double dipping). Further, companies may also be eligible for relief under other recent federal legislation (such as the Families First Coronavirus Response Act), but may not receive credit twice for the same expenses under differing programs. Continued guidance is expected regarding a number of issues including the interest rates and personal guarantee requirements following certain applicable covered periods, as discussed further below.
The PPP provides deferred 7(a) Small Business Association (“SBA”) loans to cover the costs of payroll and business related expenses. A portion of the loan is forgivable, and the forgiven amount is not counted as income. The legislation is intended to provide a forgivable loan equal to 8 weeks of eligible business costs, including payroll. The program expands the reach of the 7(a) program to include many not previously qualified to access this resource, such as freelancers, the self-employed, and gig economy workers.
Who qualifies – businesses with fewer than 500 employees; not for profit entities with less than 500 employees; certain veteran’s organizations; individuals – self-employed, sole proprietor, freelance, and gig economy workers.
Maximum amount – the lesser of 2.5 times the average monthly payroll during the one-year proceeding period or $10 million.
Interest – may not exceed 4%.
Term – loans may have up to a 10 year term.
Personal Guarantee/Collateral – the personal guarantee and collateral requirements associated with typical 7(a) loans are waived during the “covered period.”
Payments – a minimum of the first six months and a maximum of the first year of fees, principal, and interest are to be deferred.
How to Apply – applicants may apply through approved third party lenders; the CARES Act also authorizes the SBA to bring on additional lenders, but this will take time.
Eligible Costs – the following costs, paid during the 8 week period following loan origination, are eligible for forgiveness up to the total principal of the loan: payroll costs; mortgage interest; rent; and utilities. Pay roll costs include – salaries, wages, cash tips, paid leave, severance, group health care, retirement, state and local payroll taxes, and money paid to independent contractors. The following payroll costs are not eligible – employee or owner compensation over $100,000, taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code, compensation of employees whose principal place of residence is outside of the U.S., qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Interest – Any loan amounts not forgiven are carried forward as an ongoing loan with max terms of 10 years, at a maximum interest rate of 4%, because principal and interest are deferred for the first 6 months to one year of the loan term it appears that the amount forgiven will not accrue interest, but additional information should obtained from the lender regarding interest on the forgiven amount.
Employee Retention – the amount of loan forgiveness will be reduced by a proportional amount when the employer terminates employees and/or decreases employee salaries.
The purpose of the Emergency EIDL Grant program is to provide qualified businesses and individuals with prompt access to up to $10,000.00 in aid. In practice, Emergency EIDL’s are typically converted to traditional 7(a) loans (the type available under the PPP) through refinance, but qualified entities and individuals may use either or both resources, as long as the funds are not used for the same purpose.
Who qualifies – businesses, private not for profits and cooperatives with not more than 500 employees; sole proprietorships (with or without employees) and independent contractors; Employee Stock Ownership Plans (“ESOP”); and certain tribal entities.
Maximum amount – $2 million
Interest – 3.75% for small businesses; 2.75% for not for profit entities
Term – loans may have up to a 30 year term.
Personal Guarantee – the personal guarantee requirement is waived for loans under $200,000.00.
Payments – terms established with lender.
How to Apply – EIDL’s are issued through the SBA.
Emergency Funds – those applying for EIDL’s may request an advance on the loan of up to $10,000.00, to be paid within 3 days of the loan application. The entire amount advanced is considered a grant, and will be forgiven even if the applicant does not qualify for the loan. However, where an applicant transfers into the 7(a) program (i.e., loans made under the PPP) any amount of loan forgiveness under the PPP will be decreased by any EIDL Grant funds.
Below is a summary of just some of the tax benefits contained in the CARES Act. Your tax advisor should be consulted for your specific circumstances, and as discussed above, there are numerous other components to the Act, and research should be ongoing in this area to determine how the act may affect you and your business.
Employee Retention Credit – employers may receive a 50% credit on wages incurred from March 13, 2020 through December 31, 2020, up to $10,000.00 per employee, where business operations were fully or partially suspended and gross receipts declined by more than 50% compared to the same quarter in 2019.
Payroll Tax Delay – businesses and self-employed individuals may defer the employer’s share of social security owed for 2020 over a 2 year period with 50% due by the end of 2021 and 50% due by the end of 2022.
Net Operating Losses – net operating losses for the years 2018, 2019, and 2020 may now be carried back 5 years.
Business Interest Expense – business interest expense deduction cap was increased to 50% (from 30%).
Student Loans – employers may pay up to $5,250.00 per year toward an employee’s student loans and it will not count toward the employee’s income.
Summaries of the Bill
Small Business Owner’s Guide to the CARES Act
Families First Coronavirus Response Act
For further information regarding your particular circumstances, or if you need legal assistance, reach out to your normal contact at the firm, or contact Melissa Green (email@example.com).
 This information is not to be construed as legal advice or as a legal opinion on which certain actions should or should not be taken. Each situation is different and any specific questions should be referred to legal counsel. Since the onset of COVID-19, legislation and regulations are subject to raid change. This article is intended to be for informational and discussion purposes only.
 Provides grant funds to educate small businesses and their employees regarding the availability of Federal resources, hazards of COVID-19 and the best teleworking practices to prevent the spread of COVID-19; funds are provided to agencies to establish grant programs for the funds, and specific grant programs will be announced by relevant agencies at a later date.
 One issue highlighted regarding subsidies is the availability of funds for young adults claimed as dependents on their parent’s income tax returns, in these instances it appears young adults may not claim a subsidy on their own behalf; additional guidance is expected on this issue.
 Individuals who elect to receive a “coronavirus-related distribution” from qualified employer plans, may not be subject to the traditional 10% tax penalty, subject to amount restrictions. Coronavirus-related distributions made from both eligible employer sponsored retirement plans and individual retirement accounts (“IRAs”) are exempt from the 10% early distribution penalty tax. Distributions are still subject to regular income tax, but it may be spread over three years.
 Exceptions are made for certain multisite businesses subject to minimum employee requirements at each site; “businesses” include – corporations, partnerships, limited liability corporations, joint ventures (with no more than 49% participation by a foreign entity), sole proprietorships, associations, trusts, or cooperatives.
 The “covered period” is from February 15 through June 30; there is concern that lenders will attempt to impose stricter collateral or personal guarantee requirements after the covered period. Loan terms should be reviewed carefully as further guidance is sought on the issue.
 The exact length of time appears to be at the lender’s discretion.
 Salary reductions not in excess of 25% of the total salary or wages will not trigger the employee retention provision; this provision also does not apply to a reduction in salaries for those earning over $100,000.00 per year.
Headlines trumpeting the CARES Act that was signed into law on Friday, March 27, 2020, focused on trillions of dollars to be furnished to individuals and businesses in response to the novel coronavirus pandemic hitting the country. But stuck into the legislation were some helpful temporary changes to the distribution and tax rules that apply to defined contribution (DC) retirement plans and individual retirement accounts (IRAs). This news item will list those changes.
1. Only Defined Contribution Plans and IRAs. The new rules apply only to IRAs and the following defined contribution retirement plans — 401(k), profit sharing, 403(b) annuities and custodial accounts, and 457(b) salary deferral arrangements sponsored by governments and their agencies. They do not apply to defined benefit plans.
2. Restricted to COVID-affected individuals. The new rules allow distributions from plans and IRAs, and loans from plans other than IRAs, to any IRA owner or beneficiary of a retirement account who is “COVID-affected” (any one of the following):
In the case of retirement plans, the employee merely needs to provide a certification to the plan administrator that the employee fits within one of these categories. Of course, if the plan administrator knows the facts of the situation to be other than as presented by the employee, those facts should not be simply disregarded.
3. Distributions. The Act allows distributions in 2020 to a COVID-affected individual totaling up to $100,000 from one’s account and regardless of one’s age. For example, the 401(k) rules prohibit an individual from drawing out any of his or her salary deferral contributions from the Plan until age 59½. Many Plans prevent any distribution so long as the individual is still employed with the sponsoring employer.
The new temporary rule allows a distribution regardless of the individual’s age and regardless of any other restrictions that the Plan may have in place. The Plan sponsor will have to adopt an amendment to the Plan to permit the distribution, but that amendment need not be adopted until the end of the 2022 plan year (this aligns with the date by which required changes have to be made to the Plan under the SECURE Act enacted this past December).
Any qualifying distribution will be subject to regular income tax but will be exempt from the 10% penalty tax that normally applies if the individual is under age 59½ on the date of distribution.
Normally, there is 20% income tax withholding on single sums distributed from a qualified plan. The Act waives this for qualifying distributions, so the individual can use all of the distribution immediately.
To alleviate the income tax burden, the individual can spread the income that is recognized from the distribution ratably over as many as 3 years (2020-2022). That could mean a sizeable tax savings if the family’s income is significantly impaired over the next year or so.
4. Repayment of Distribution. A COVID- affected individual who receives a distribution will have the option to repay the distribution to the Plan, or to any other plan in which the individual is participating (including an IRA), within 3 years of the distribution. In effect, the distribution would become an interest-free loan. How this will be reported will have to come from future IRS guidance, but presumably the employee would have to amend his/her return from the prior year(s) in which the income was claimed to reclaim the taxes paid in the earlier years.
5. Loans. Prior law limited loans to individuals from their retirement plans (no loans are permitted from IRAs) to the lesser of 50% of their account balance or $50,000. The Act allows a COVID-affected individual to borrow his or her entire account balance up to $100,000 from now until September 25, 2020. If the individual has any loan already outstanding, the highest principal balance that existed over the prior 12 months must be deducted from the $100,000 maximum to arrive at the available loan amount.
A COVID-affected individual who already has a loan outstanding, or who obtains a new loan under the Act’s expanded limits, is given a grace period of all of 2020 on any repayment scheduled to be made in 2020. While interest will still accrue on the outstanding loan balance, the repayment period is extended out by the length of the grace period.
6. Required Minimum Distributions – 2020 a Grace Year. DC Plans and IRAs must distribute to account owners a required minimum distribution (RMD) each year to individuals who have attained age 72 (a DC Plan participant who is not a 5% owner of the employer can delay this until he or she actually retires from service). The age use to be 70½ before 2020.
The Act allows any individual who began receiving RMDs prior to 2020 to opt to receive a distribution of as little as $0 in 2020. Then, beginning in 2021, the RMDs would pick up again, but there would be no “make-up” distribution required in 2021. You do not have to be a COVID-affected individual to obtain this relief.
What if you already received your scheduled 2020 RMD? There is no special rule under the Act that allows return of that distribution to the distributing plan. However, you can take advantage of the 2020 exemption rule by rolling the distribution to a qualified plan (that accepts rollovers), or to an IRA, if done within 60 days of the distribution.
If an individual who is over age 70½ is scheduled to begin to receive his first RMD by April 1 of this year, he or she can delay that distribution until 2021. There would be no “make-up” distribution in 2021.
Certainly, there’s a lot here to digest and we hope these changes will benefit our clients and all plan and IRA participants. Always feel free to call any of the members of the Pension Department for answers to any of your questions on this or any other topic.
Stewart M. McGough (315) 477-6225
Catherine A. Ray (315) 477-6250
Jean A. Borrow (315) 477-6258
Since 1979, the Syracuse-based law firm of SCOLARO FETTER GRIZANTI & McGOUGH, P.C. has provided sophisticated tax, business, litigation, employee benefits, estate and trust planning and administration services to its individual, business, entrepreneurial and professional clients throughout New York, Pennsylvania, Florida and other states in which its attorneys are admitted to practice.