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What You Need to Know About the Tax Effects of Mandatory Leave Under the New Coronavirus Act

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What You Need to Know About the Tax Effects of Mandatory Leave Under the New Coronavirus Act

By Mel Schwarz, CPA, Director of Legislative Affairs at Eide Bailly

The House of Representatives recently passed The Families First Coronavirus Response Act.  This act could drastically impact those affected by COVID-19 and their employers.

The Senate is expected to take up the legislation this week. President Trump has announced that he will sign the legislation as soon as it is approved by Congress.

What is the Families First Coronavirus Response Act?
The Families First Coronavirus Response Act includes a number of provisions related to management of the coronavirus pandemic.  The legislation also mandates that, beginning no later than 15 days after the legislation is signed by the President through the end of 2020, private employers with less than 500 employees and all public employers provide expanded qualified family and medical leave and paid sick leave for a broad range of coronavirus related absences.

Additional wages paid by private employers as a result of these provisions offset the employer’s share of old age, survivors and disability insurance taxes.  Any excess over the amount of taxes due is refundable under terms to be established by the Secretary of the Treasury. Wages paid as a result of these provisions are excluded from the calculation of the employer’s share of social security (but not Medicare) taxes.

How will the Families First Coronavirus Response Act affect my organization?
Changes to the Internal Revenue Code are limited to determination of credits and income.  The requirements to provide paid sick leave and additional qualified family and medical leave are amendments to labor laws and are expected to be interpreted using definitions and standards established in that area.  Consultation with experts in the employee benefits area should be considered.

Application to Private Employers with Less than 500 Employees

Paid Sick Leave: Private employers with fewer than 500 employees are required to provide the following:

  • Two weeks of paid sick leave, at the employee’s regular rate, limited to $511 per day and $5,110 in total to all employees that are unable to work or telework because they are:
    • Subject to a federal, state or local quarantine or isolation order related to coronavirus,
    • Advised by a health care provider to self-quarantine due to coronavirus concerns, or
    • Experiencing symptoms of coronavirus and seeking a medical diagnosis.
  • Two weeks of paid sick leave, at the employee’s regular rate limited to $200 per day and $2,000 in total for employees who are unable to work or telework because they are:
    • Caring for an individual who is subject to a federal, state or local quarantine or isolation order or has been advised by a health care provider to self-quarantine due to coronavirus concerns,
    • Caring for a son or daughter whose school or place of child care of the child is closed or whose child care provider is unavailable due to coronavirus precautions, or
    • Experiencing a substantially similar condition that is specified by the Secretary of Health and Human Services (in consultation with the Secretaries of Treasury and Labor.

The paid sick leave mandated by the legislation is in addition to paid sick leave the employer would already provide.  Paid sick leave mandated by the legislation is not considered wages for the purpose of determining the employer’s share of social security taxes but will be considered wages in determining the employer’s share of Medicare taxes.  An employer may elect to exclude an employee who is a health care provider of an emergency responder from these rules.

tax credit against the employer’s portion of OASDI (social security) payroll taxes equal to the amount of sick leave wages is provided, limited to 10 days per affected employee (at $511 per day or $200 per day if caring for someone else or experiencing a substantially similar condition.  Any excess over the amount of those taxes due is refundable under terms to be established by the Secretary of the Treasury. The gross income of the employer is increased by the amount of such credit.

In addition, the credit amount, under the act, would be increased by an allocable portion of an employer’s “qualified health plan expenses.” Generally, these expenses include amounts paid for a group health plan that are excludable from employees’ income. The employer’s share of Medicare tax on sick leave wages is also added to the credit amount.

The paid sick leave requirement and related credit is effective no later than 15 days after the President signs the legislation and expires at the end of 2020.

Paid Family and Medical Leave: Private employers with fewer than 500 employees are also required to provide qualified family and medical leave of up to 12 weeks to any employee who has been employed for at least 30 calendar days if the employee is unable to work or telework due to a need for leave to care for a son or daughter under the age of 18 whose school or place of care has been closed, or whose child care provider is unavailable due to the coronavirus.

After the first 10 days (which may consist of unpaid leave, be covered and paid as sick leave, or for which the employee uses some other form of paid leave) the employee must be paid at two-thirds of the employee’s regular rate of pay for the number of hours the employee would otherwise normally be scheduled to work. This paid leave requirement is limited to $200 per day and $10,000 in total.

Family and medical leave payments mandated by the legislation are not considered wages for the purpose of determining the employer’s share of social security taxes but will be considered wages in determining the employer’s share of Medicare taxes.

A credit against the employer’s portion of OASDI (social security) payroll taxes equal to the amount of qualified leave wages is provided, limited to $200 per day per affected employee and $10,000 for the year per affected employee. Any excess over the amount of payroll taxes due is refundable under terms to be established by the Secretary of the Treasury. The gross income of the employer is increased by the amount of the such credit.

As with sick leave, the tax credit amount for family leave would be increased by an allocable portion of an employer’s “qualified health plan expenses” in addition to the employer’s share of Medicare tax on the family leave wages.

The requirement to provide paid family leave and the related credit is effective no later than 15 days after the President signs the legislation and expires at the end of 2020.  The Secretary of Labor may exclude certain health care providers, emergency responders and employees of businesses with less than 50 employees from the expanded qualified leave rules. This would occur when the imposition of these rules could jeopardize the viability of the business.

Application to Private Employers with 500 or More Employees

Private employers with 500 or more employees are not covered by these changes and are not eligible for credits for wages paid for sick leave or qualified family leave.

Public Employers
Public employers are subject to the paid sick leave and paid family leave provisions without regard to the number of employees.  Public employers include States, their political subdivisions and interstate governmental agencies (government employers), as well as any entity that is not a private entity or individual and is ether engaged in commerce or an industry or an activity affecting commerce. Government employers are not eligible for the credits.

How do I determine the number of employees I have?
The definition of employer and determination of the number of employees follows the existing law and regulations in the Family and Medical Leave Act.  Multiple entities may be treated as a single employer if they are joint employers or integrated employers as those terms have been interpreted under that Act.  In general, joint employers are two or more businesses that are simultaneously benefited by an employee’s work.  Integrated employers may be found where there is common management, interrelations between operations, centralized control of labor relations and common ownership.

How are individual taxes treated under The Families First Coronavirus Response Act?
Tax Treatment of Employees
Amounts received as paid sick leave or paid family and medical leave are taxable to the individual and subject to employment taxes.

Tax Treatment of Self-Employed Individuals

 A refundable credit is allowed to self-employed individuals for up to ten days that would qualify for mandatory paid sick leave.  The daily amount is equal to the net earnings from self-employment for the year divided by 260, and is subject to the same $511 or $200 per day limitation that applies in the case of an employee.

A refundable credit is allowed to self-employed individuals for up to 50 days the individual is unable to work because of events that would qualify for paid family and medical leave.  The amount per day is equal to net earnings from self-employment for the year divided by 260, subject to a maximum of $200 per day.

There is more to come on the legislative response to Coronavirus
There are a lot of moving parts related to the final passage of this Coronavirus Response legislation.  We are monitoring the bill’s progress and will be providing additional confirmed information as it becomes available.

Stay up to date on the latest coronavirus happenings.

The Inland Empire Business Journal (IEBJ) is the official business news publication of Southern California’s Inland Empire region - covering San Bernardino & Riverside Counties.

Banking & Financial Services

Bank of America Private Bank Announces New Inland Desert Market, Names Patricia Chavez as Market Executive

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Reflecting the growing wealth and economic expansion of the Inland Empire, Bank of America Private Bank today announced Patricia Chavez has been named as the Market Executive for the Private Bank’s newly created Inland Desert market. This market will serve Private Bank clients across the Inland Empire from offices in Palm Springs, Palm Desert, Ontario, and Riverside. Chavez will oversee a team of dedicated private client advisors who deliver custom investment management, wealth structuring, estate planning, philanthropy, private business financing, banking, credit and trust service needs to high net worth individuals, families and institutions.

“We believe Patricia’s extensive leadership and experience make her the perfect candidate to lead this market,” said Mark Benson, Private Bank Managing Director/ West Division Executive. “Throughout the Private Bank’s long history, we have helped our clients by providing personalized investment management, credit and banking solutions and as a bridge between generations. Under Patricia’s leadership, the local team will continue to deliver private banking capabilities to help clients create a legacy that gives meaning to their wealth today and in the future.”

Chavez is a third-generation Bank of America employee who began her career as a teller in La Mirada in 1989.  She most recently served as Managing Director and Philanthropic Market Executive for the West and Central North Divisions for Bank of America Private Bank, and prior to that was a Business Banking executive for the Inland Empire for 14 years. She serves on the board of trustees for the Autry Museum of the American West, sits on the College of Business and Public Management Advisory Board of the University of La Verne, and previously served on the boards of Habitat for Humanity Riverside, Foothill Family Shelter Upland and the Inland Empire Economic Partnership.

Chavez earned her M.B.A. with a concentration in Finance from the University of La Verne, her Bachelor’s degree in Business Administration with an emphasis in Marketing from California State University Fullerton, and is a graduate of Pacific Coast Banking School.  Last year, she was recognized as a “Top Woman of Influence in Banking” by the Los Angeles Business Journal and as a “Latina to Watch” by the Association of Latino Professionals For America (ALPFA).

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Banking & Financial Services

Falcon Wealth Planning To Celebrate 7 Year Anniversary With Ribbon Cutting Ceremony At Their New Location

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The Inland Empire Regional Chamber of Commerce (IERCC) is excited to announce their newest member, Falcon Wealth Planning, Inc. With that announcement comes a celebration, as the IERCC will be helping Falcon Wealth Planning celebrate their 7-year anniversary with a Ribbon Cutting Ceremony for the grand opening of their new building on April 19, 2022.

For this special event, guests will be able to enjoy a meet and greet with Falcon Wealth Planning’s executive staff, high-quality networking, food, and drink, and most of all a great time. The ceremony will take place between 4:30 p.m. and 6 p.m. and include guest speakers from Gabriel Shahin, Principal at Falcon Wealth Planning, Inc., and Edward Ornelas, Jr., President, and CEO of Inland Empire Regional Chamber of Commerce.

Falcon Wealth Planning focuses heavily on tax planning and works with Certified Public Accountants so that you can breeze through tax season and plan today, avoiding stress during your retirement. With over 30 years of experience, they dedicate their services to preparing creative solutions tailored specifically to you.

The IERCC’s mission is to support and contribute to the interests of commerce and economic prosperity throughout Riverside County and San Bernardino County. They are a progressive, non-profit business organization striving to bring true value to their members, investors, sponsors, and community.

Together, they will be celebrating the grand opening of Falcon Wealth Planning’s new building located at 3400 Inland Empire Boulevard In Ontario, California, on April 19, 2022, starting at 4:30 p.m. Tickets for the event are free. It is highly recommended to register early, which you can do so by clicking here!

If you have any questions or need more information, please contact the IERCC at info@iechamber.org.

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Banking & Financial Services

Q&A Session with Black Cooperative Investment Fund Executive Director—Kaine Nicholas

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Q&A with Kaine Nicholas, Executive Director of Black Cooperative Investment Fund

By Josaline Cuesta, Small Business Majority, Senior California Program Manager, and IEBJ Contributor

Why is financial literacy important for small business owners? What are the pillars of financial literacy?

Financial literacy is the comfort level one may have with topics related to money and its management. Financial literacy is critical to success, and it’s where everything begins for small business owners.  

At the beginning of a business venture, an entrepreneur can be cash-challenged and relatively inexperienced in practical business versus theory. It is important that while learning the business terrain, entrepreneurs have at the very least, a baseline of financial literacy to question documents and do calculations or have support to negotiate effective business terms. Any terms that are negotiated at the beginning of a venture can significantly affect the projections or the valuation of a business. These effects can vary widely, depending on the comfort level of financial literacy. 

The pillars of financial literacy are banking, budgeting, saving, credit, debt, and investing. What matters most to small business owners is budgeting, banking, and credit, and we recommend focusing on that order for small business owners. Understanding the numbers, having the assets with banking partners that can offer solutions, and building business and personal credit are all imperative to small business owners. BCIF and its trusted partner, AmPac Business Capital can help everyone gain a firm awareness of these pillars.

What’s needed to create a strong financial plan?

What is needed to make a strong financial plan is the actions that happen alongside writing the actual financial plan. While one may be uncertain of the “hockey stick” or optimistic revenue, what people can control is the cost. Know those costs and how they change in a good, better, or best scenario to keep you prepared.  

No one likes surprises. There is security and comfort in knowing that costs are consistent and predictable. Spend time conducting the research and use due diligence so that you and the financial partners understand the financial plan and financial statements. 

What’s in a business plan, and why is having one essential for a small business owner? 

A business plan is a document that, at its most basic level, can help small business owners navigate the who, what, where, why, and how to generate income with a product or service. The business plan tells the reader that this “document” is your prototype on paper. The business plan also helps readers understand the basic valuation of your business. 

If your business plan is on paper, does it articulate the vision, or is it a requirement for a loan program? The business plan is important because it represents as the creator of the business. Thinking business out on paper can reduce mistakes in real-world execution.  

What’s the best way to document and share major changes to a business plan with your financial advisor and employees, such as becoming a corporation or expanding to another state? 

Ensure the establishment of company meetings and hold them routinely, preferably with quarterly updates. This allows stakeholders to receive firm-wide public information and establishes communication between leadership, management, and employees. 

What are some tips for thinking strategically about cash flow?  

One tip is to understand what is in the pipeline and/or accounts receivables and monitor subscriber trends to your products or solutions. When I ask business owners how their business is doing, they usually respond with, “it’s going well.”  And I always ask myself, what does that really mean, and is the owner aware of the items that support healthy cash flow?

Is a personal credit score relevant to small business success? What defines a “good credit score” and how can you maintain one?

Personal credit is relevant to businesses at the earlier stages of a business. If used correctly, one should leverage good credit and create business credit as soon as possible. Personal credit and business credit are created differently and operate differently. That difference can be critical to accessing capital. Unfortunately, a “good credit score” is not universal. We recommend owners investigate the potential creditor by asking what numerical score and credit history on the credit report will produce a favorable outcome. A credit score and credit report are two components that contribute to a sizable credit decision. With that information, the small business owners have a credit “road map.” What is most important is that the business owner is proactive in the credit conversation. One can maintain and learn more with one of BCIF’s trusted partners, AmPac Business Capital.  

What are the top three easy-to-navigate business loans for a startup business? Do the types of loans that are needed change in your 2nd or 3rd year of business?

The top and the easiest loan is a zero-interest loan based on an alternative way of evaluating personal credit and traditional risk models. If one can find a small business loan that targets a certain demographic or type of business, that should be extremely helpful. Third, look for a small business loan that can be forgiven. 

The types of loans that could change in your second or third year of business can be tricky. Business success and loan/funding gaps require careful consideration, but most important, predictability. 

How will I know that a financial literacy resource is proven and credible?

Financial literacy is a journey. One way to affirm credibility is to compare it to your financial situation. Always have a backup resource for validation.

How can the average entrepreneur improve their financial literacy?

This is an important and critical question that I will answer in an alternative, more direct way. I strongly recommend these three words as ways to improve personal and business financial literacy:

  • Curiosity
  • Humility
  • Discipline

Start with opening your mail and being curious about the words that you do not understand in your statements. Call the service number and ask the person to explain what these words mean regarding your account. It sounds simple, but it truly is a free lesson that benefits your personal or professional situation. The information is memorable because the asker is learning even when configuring the question. (Do not forget your tax person or accountant.   They are your resources).

Humility helps your behavior when you ask a question, and you partially know the answer, but you ask questions to attain mastery.  

Lastly, you must be disciplined and determined when you call the service line or account representative when you do not fully understand a financial term. Do not feel like you are wasting their time asking basic questions. If they have chosen to do business, service your needs, or hold your money, you are only using your mutual rights within the relationship. 

What is the best way to stay abreast of COVID relief funds and resources in the Inland Empire area?

Contact the Black Cooperative Investment Fund (BCIF) at www.bcifund.org, 310-904-6336, reach out to our partner, AmPac Business Capital at www.ampac.com, or visit Venturize: https://venturize.org/—Small Business Majority’s free online resource hub for small business owners who need help accessing tools and resources to grow their businesses.

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