Stimulus Package: How Does it Work for


Stimulus Package: How Does it Work for...

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Stimulus Package: How Does it Work for Financial Advisors?

Featuring

Armstrong Robinson

Josh Caron

Ken Kies

VP of Legislative Affairs AALU/GAMA

AVP of Political Affairs AALU/GAMA

Managing Director Federal Policy Group

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Stimulus Package: How Does it Work for Financial Advisors?

C19 – Relief Resources for Small Businesses • • •

Phase 1 Bill = $ 8.3 Billion For Testing and Resources for CDC, NIH, FDA, SBA, USAID Phase 2 Bill = $100 Billion + For Testing, PFML, Medicaid and SNAP, UI Phase 3 Bill = $ 2.2 Trillion Bridge Loan to the American Economy

COVID 19 Action Center - AALU.org or GAMAWEB.com

Where We Are Today • Recovery Rebates have begun to hit individual’s bank accounts • EIDL and PPP Loans have reached capacity • 22 Million Americans have filed for unemployment in just 4 weeks

What Comes Next • Congress and the Administration negotiating around the next package • Republican position – $250 billion for SBA • Democrat position – the above, plus $250 billion for testing, hospitals, and state/local governments • Once impasse is resolved, look for Congress to work on more mitigation efforts

Relief for Financial Advisors 1. 2. 3. 4. 5. 6.

Recovery Rebates: $1,200 ($2,400/couple) for AGI under $99,000 Unemployment Insurance: $600/week for up to 39 weeks; applies to independent contractors/sole proprietors/gig workers Retirement Plans: Waives 10% withdrawal penalty for plan loans, 3-year payback period *** Student Loan and Mortgage Relief: Extended repayment deadlines Charitable Giving: Incentives for cash gifts related to COVID-19 Delayed IRS Deadlines – filing and estimated payments to July 15, 2020

7. Independent Contractor Eligibility for SBA programs

FOCUS: Small Business Administration Resources • Small Business Loan Relief. SBA will pay all principal, interest, and fees on all preexisting SBA 7(a) loan products for six months to provide economic relief. It excludes PPP loans. • Paycheck Protection Program (PPP) – up to $10 million • Economic Injury Disaster Loans (EIDL) – up to $2 million • Note: A small business may receive both PPP and EIDL loans, however, the funds must be used for different purposes.

• Independent Contractors, Self-Employed Individuals, & Statutory W2 ICs are eligible to participate in SBA programs under the CARES Act.

SBA: Payroll Protection Plan • Your loan amount is based on net income last year • If you have employees, can count their compensation

• Up to eight weeks of pay and expenses forgivable (making it effectively a grant) • No federal income tax on the forgiven amount • Any amount not forgiven -> Loan terms • First payment due in six months; can request deferral up to 12 months • 1% interest rate • Payable over 2 years

• Apply – • First – contact your bank and ask about their 7(a) / PPP program • Second - SBA.gov has lender matching tools available

PPP: Two Distinct Calculations • Maximum Loan Amount = Average Monthly Payroll Expenses x 2.5 •

A Look Back Rule •

IC/Stat W2 – can include net earnings up to $100,000



IF you employ others as common law employees: You can add to your base calculation: •

What you paid that employee (cash compensation e.g., salary, commissions, PTO) up to $100,000 per employee; and



Non-cash compensation (e.g., group health benefits including insurance premiums, retirement benefits, state or local tax on comp).

Note: non-cash compensation of the IC/Stat W2 to themselves is not a plus up in the base number

PPP: Two Distinct Calculations • Maximum Forgiveness = 8 weeks of actually-paid permissible expenses •

A Look Forward Rule • • •



75% or more must be for payroll/earnings 8-week period begins on date the loan is made (i.e., funds are disbursed). Eligible costs include: (all with respect to services beginning, or obligations incurred, before February 15, 2020) • payroll costs; • any interest on any covered mortgage obligation; • any payment on any covered rent (or lease); and • any covered utility obligations

You can only apply for loan forgiveness after the loan is originated.

SBA: PPP Examples The following examples are based on our reading of the rules as we know them today. New Guidance is being released almost daily. We will update the COVID-19 Action Center as events warrant.

SBA: PPP Example 1 Business owner who is a sole proprietor, self-employed, or independent contractor • No employees • Net income of $105,000 for tax year 2019 (line 31 of 2019 Schedule C) • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $600 per week Answer: “Payroll costs” = only that portion of the business owner’s 2019 net income as is below the $100,000 cap. Max loan amount = ($100,000 / 12) x 2.5 = $20,833.33 Max forgiveness = (($100,000 / 52) x 8) + ($600 x 8) = $20,184.62 Remaining Loan Amount = $648.71

SBA: PPP Example 2 Business owner who is a sole proprietor, self-employed, or independent contractor • One employee making a salary of $40,000, with non-cash benefits of $5,000. • Net income of $105,000 for period one-year prior • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $600 per week Answer: “Payroll costs” = the portion of the business owner’s 2019 net income as is below the $100,000 cap, plus the employee’s total comp (cash and non-cash). Max loan amount = ($145,000 / 12) x 2.5 = $30,208.33 Max forgiveness = (($145,000 / 52) x 8) + ($600 x 8) = $27,107.69 Remaining Loan Amount = $3,100.64 NOTE: If the “employee” were an independent contractor – then none of that compensation would be included in the owner’s payroll costs and the amounts would be the same as in Example 1.

SBA: PPP Example 3 “Statutory” Employee • Statutory employee of Carrier A who is not a common law employee of Carrier A (i.e., is generally independent contractor) • Carrier A paid $65,000 to statutory employee in 2019 • Statutory employee also made income from investment advice business, and total net income for 2019 was $115,000 • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $600 per week Answer: for the statutory employee’s PPP, “payroll costs” = so much of the statutory employee’s 2019 net income as is below the $100,000 cap. Max loan amount = ($100,000 / 12) x 2.5 = $20,833.33 Max forgiveness = (($100,000 / 52) x 8) + (($600 x 8)) = $20,184.62 Remaining loan amount = $648.71 NOTE: Similar to example 2 – if this person had an employee, those amounts would be includable in the base calculation.

SBA: PPP Example 4 LLC – no employees • No employees • Active owners who each own 50 percent of the entity • 2019 net income of the two owners of the LLC is $150,000, each • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $1,000 per week Answer: for the LLC’s PPP, “payroll costs” = the sum of so much of each owner’s allocable share of the LLC’s 2019 net income as is below the $100,000 cap. Max loan amount = ($200,000 / 12) x 2.5 = $41,666.66 Max forgiveness = (($200,000 / 52) x 8) + (($1,000 x 8)) = $38,769.23 Remaining loan amount = $2,897.43

SBA: PPP Example 5 LLC – with employees • One employee, whose cash compensation is $40,000 and non-cash compensation is $5,000 • Active owners who each own 50 percent of the entity • 2019 net income of the two owners of the LLC is $150,000, each • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $1,000 per week Answer: for the LLC’s PPP, “payroll costs” = the sum of so much of each owner’s allocable share of the LLC’s 2019 net income as is below the $100,000 cap, plus the employee’s total comp (cash and non-cash). Max loan amount = ($245,000 / 12) x 2.5 = $51,041.66 Max forgiveness = (($245,000 / 52) x 8) + (($1,000 x 8)) = $45,692.31 Remaining loan amount = $5,349.35

SBA: PPP Example 6 S Corporation – no employees • No employees • Owners each own 50 percent of the entity • Reasonable compensation paid to two owners of the S corporation is $100,000, each • $50,000 of residual profit in S corporation, allocated $25,000 to each owner • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $1,000 per week Answer: for the S corporation’s PPP, “payroll costs” = so much of the owner’s reasonable compensation paid by the entity as is below the $100,000 cap. NOTE: there remain some uncertainties as to how to treat S corporations for purposes of the PPP, but applying a modified form of the guidance for partnerships/LLCs is the likely answer. Max loan amount = ($200,000 / 12) x 2.5 = $41,666.66 Max forgiveness = (($200,000 / 52) x 8) + (($1,000 x 8)) = $38,769.23 Remaining loan amount = $2,897.43

SBA: PPP Example 7 S Corporation – w/ employees & ICs • Two employees making $40,000 and $60,000 • Two independent contractors making $75,000, each • Owners each own 50 percent of the entity • Reasonable compensation paid to two owners of the S corporation is $100,000, each • $50,000 of residual profit in S corporation, allocated $25,000 to each owner • Covered rent, covered leased equipment, and covered utilities (all allowed as 2019 expenses) total $1,000 per week Answer: for the S corporation’s PPP, “payroll costs” = so much of the owner’s reasonable compensation paid by the entity as is below the $100,000 cap, plus the compensation paid to the employees. Independent contractors are disregarded (must apply for their own PPP). Max loan amount = ($300,000 / 12) x 2.5 = $62,500 Max forgiveness = (($300,000 / 52) x 8) + (($1,000 x 8)) = $54,153.85 Remaining loan amount = $8,346.15

Small Business Loans: Emergency • The loans are designed to provide economic relief due to an emergency or catastrophe. They can be used to pay fixed debts, payroll, accounts payable and/or other bills that can’t be paid due to the epidemic’s economic impact. • Up to 2 million; payable over 30 years; 3.75% or 2.75% for expenses that could have been met had the disaster not occurred. • Emergency EIDL grant is an advance of $10,000 on loan application (within 3 days), and it does not have to be repaid – in any case. • Eligibility: Small business with less than 500 employees or defined by NAICS Industry Code based on revenue and/or employees; Non-profits [including (c)(3) and (c)(6)] • Apply – SBA.gov

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