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How Ohio’s New Municipal Income Tax Withholding Requirements Impact Work-From-Home Arrangements

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February 10, 2022

February 10, 2022 

Beginning in 2020, COVID-19 prevented millions of people from leaving their homes and forced employers to create work-from-home policies. The work-from-home policies promoted virtual work environments, as employers adapted their workflows to embrace the new normal.

At first, employers considered virtual work environments a temporary solution. But, employees and employers have found considerable value in allowing employees to work from home, even as the most pressing dangers from COVID-19 are subsiding. Now, many employers are moving to permanent hybrid work environments, offering employees the ability to split their work time between offices and their homes.

In Ohio, 649 municipalities and 199 school districts impose income taxes where an employee works. And, employers are generally required to withhold applicable municipality and school district income taxes. When employers first instituted work-from-home and hybrid work policies, it was unclear what municipality’s taxing rules applied if an employee’s home and the employee’s office are in different municipalities. Ohio’s 2021-2022 budget law, passed in 2021, made Ohio’s municipal income tax withholding requirements clearer.

Effective January 1, 2022, employers must withhold municipal income taxes where an employee’s work is actually performed, for each portion of a day worked in any taxing municipality where the employee performs services for the employer. The rule applies even when an employee works in a different municipality in the same day.

Example. An employee, John, works from home three days per week and in the office two days per week. John’s home is in Cleveland Heights, Ohio, but his office is in Cleveland, Ohio. Both Cleveland Heights and Cleveland impose municipal income taxes. Under the new law, John’s employer must withhold and pay over Cleveland Heights income taxes for the three days John works from home, and Cleveland income taxes for the two days John works from the office.

The general rule has several exceptions, including a 20-Day Occasional Entrant Exception, Independent Contractor Occasional Entrant Exception, and Small Employer Withholding Exception. Walter | Haverfield will cover the exceptions and employer best practices in an upcoming client alert.

The Ohio Society of CPAs has released a comprehensive Municipal Tax Withholding and Refund Q&A Guide, which can be downloaded here.

If you have questions about complying with Ohio’s new municipal income tax withholding requirements—including questions about eligibility for an exception—please contact Walter | Haverfield’s tax attorneys Vince Nardone and Mike Sorice. Their contact information is below.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. Vince can be reached at vnardone@walterhav.com or at 614-246-2264.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. Mike can be reached at msorice@walterhav.com or at 614-246-2262.

Ethan Fry is a law clerk in the Columbus, Ohio office of Walter | Haverfield. Ethan can be reached at efry@walterhav.com or at 614-246-2267.

Legislative Changes to Employee Benefits Law: Federal Funding for COBRA and Flexible Spending Account Relief

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May 14, 2021

Petra BradburyMay 14, 2021 

In response to the coronavirus pandemic, Congress enacted several legislative changes to employee benefits law. The Consolidated Appropriations Act of 2021 (“CAA”) creates temporary special rules for health and dependent care flexible spending accounts, and the American Rescue Plan Act (“ARPA”) provides subsidized COBRA coverage for individuals and families.

Flexible Spending Accounts

The CAA, passed at the end of 2020, allows plan sponsors to make several optional amendments to flexible spending account plans, including amendments to allow post-termination reimbursements from health flexible spending accounts, plan year carryovers, and extended grace periods.

Post-Termination Reimbursements. The CAA allows plan sponsors to amend health flexible spending account plans to permit post-termination reimbursements to employees who cease to participate in the plan during calendar year 2020 or 2021. The permitted amendment would allow former participants to spend down unused benefits or contributions through the end of the plan year during which the employee ceased to participate—including through any grace period.

Under the CAA, post-termination reimbursements for health flexible spending accounts must follow rules similar to the rules that apply to dependent care flexible spending accounts. A dependent care flexible spending account plan can include a spend-down provision if:

  • The plan provides dependent care assistance;
  • The plan does not discriminate in favor of highly compensated employees;
  • 25 percent or less of amounts paid or incurred by the employer during the year are for principal shareholders or owners of the employer;
  • Eligible employees are notified;
  • Written expense statements are provided to employees; and
  • Applicable nondiscrimination testing is satisfied.

Plan Year Carryovers. For plan years ending in 2020 and 2021, the CAA allows plan sponsors to permit participants to carryover the entire unused benefit or contribution remaining in the participant’s flexible spending account to the next plan year.  Prior law only allowed carryovers for health flexible spending accounts—limited to $550 per plan year—but the CAA permits carryovers of the entire account balance for both health and dependent care flexible spending accounts.

In addition, dependent care flexible spending accounts may permit participants who elected dependent care flexible spending account coverage for the 2020 plan year during an enrollment period that ended on or before January 31, 2020, and whose dependent child reached age 13 during the 2020 plan year, to continue to use their dependent care flexible spending account funds for the child’s expenses through the end of the 2020 plan year.  Further, if a balance remains in the participant’s dependent care flexible spending account at the end of the 2020 plan year, the participant may use that balance for the child’s expenses into 2021, until the child reaches age 14.

Extended Grace Periods. Under the grace period rule, a flexible spending account plan may permit employees to use amounts remaining from the previous year—including amounts remaining in a health flexible spending account—to pay expenses incurred for qualified benefits after the end of the plan year. For plan years 2020 and 2021, the CAA allows plan sponsors to extend the grace period from two and a half months after the end of the plan year, to 12 months after the end of the plan year.

COBRA Premium Subsidy & Tax Credit

The ARPA, passed in March 2021, provides subsidized COBRA coverage of up to six months of 100 percent coverage from April 1, 2021, through September 30, 2021, for assistance-eligible individuals. An assistance-eligible individual is a COBRA qualified beneficiary who is eligible for and elects COBRA coverage due to a qualifying event of involuntary termination of employment or reduction of hours. The subsidy is available for any period of coverage between April 1, 2021, and September 30, 2021. However, eligibility may end earlier if the qualified beneficiary’s maximum period of coverage ends before September 30, 2021, or if the qualified beneficiary becomes eligible for coverage under another group health plan.

Individuals who do not have a COBRA election in effect on April 1, 2021—but who would be eligible for the subsidy if they did—are also eligible for the subsidy. Further, individuals who discontinued COBRA coverage before April 1, 2021—but who would be eligible for the subsidy if they had not discontinued coverage—are eligible if they are within their maximum period of coverage. These individuals can make a COBRA election beginning April 1, 2021, and ending 60 days after the group plan provides the individual the required notification of the extended election period.

Notices from Assistance-Eligible Individuals to Health Plan. Assistance-eligible individuals must notify the group health plan if they cease to be eligible for the subsidy, and can face penalties of $250 (or more for intentional failures) if the individual fails to provide the required notification.

Notices to Assistance-Eligible Individuals. Group health plans must provide certain notices to assistance-eligible individuals, including:

  • Notice of assistance availability;
  • Notice of extended election period; and
  • Notice of expiration of subsidy.

The Department of Labor has issued model notices that group health plans should use to notify eligible individuals and a Summary and Request for Treatment as an Assistance Eligible Individual. Copies of the model notices and the Summary are attached to this Client Alert.

Refundable Tax Credit. Under the ARPA, the employer pays the cost of subsidized COBRA coverage and can take a refundable quarterly tax credit against Medicare payroll taxes equal to the premium amounts not paid by assistance-eligible individuals. The quarterly credit may be paid in advance.

State “Mini-COBRA”

Employers who have fewer than 20 employees may have to comply with ARPA provisions described above that apply with respect to their state’s “mini-COBRA” law for extended continuation coverage.  The ARPA (i) does not require an extension of the time in which to apply for coverage under the state’s mini-COBRA law, (ii) does not require certain notices required under the ARPA for federal COBRA to be provided if notice is not required under the state’s mini-COBRA law, and (iii) does not require subsidized coverage be provided if the loss of coverage resulted from a reduction in hours if the state mini-COBRA law does not provide for continuation coverage in that circumstance.  A copy of the Department of Labor’s model notice regarding state continuation coverage and the ARPA is attached.

Severance Agreements

Severance agreements often include provisions regarding employer payment of some or all COBRA premiums for a specified time period.  Future severance agreements that will take effect during the subsidy period should be appropriately drafted to take into account the ARPA 100% subsidy.  Existing severance agreements should be reviewed to determine if any changes are needed.

Conclusion

The legislative changes to flexible spending account plans are permissive—not mandatory—and have administrative and financial implications. Plan sponsors with questions about adopting the permitted amendments and administering the changes should contact Walter Haverfield attorneys.

Employers with questions about how to administer the COBRA subsidy, provide the required notice, and take the new COBRA tax credit under the ARPA should contact Walter Haverfield attorneys before May 30, 2021, when the first notices are due.

Resources 

Tim Jochim is a partner in the Columbus, Ohio office of Walter |Haverfield and a national authority on business succession and employee stock ownership plans (ESOPs). Tim can be reached at tjochim@walterhav.com or at 614-246-2152.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planning, mergers and acquisitions, and tax planning. Mike can be reached at msorice@walterhav.com or at 614-246-2262.

Russell Shaw is a partner in the Cleveland, Ohio office of Walter | Haverfield and focuses his practice on employee benefits, which include retirement plans, executive deferred compensation plans, welfare benefit plans, VEBAs, and 403(b) tax-deferred annuity plans. Russell can be reached at rshaw@walterhav.com or at 216-928-2888.

Petra Bradbury is an associate in the Cleveland, Ohio office of Walter | Haverfield and focuses her practice on employee benefits and deferred compensation plans. Petra can be reached at pbradbury@walterhav.com or at 216-619-7841. 

Changes to Paycheck Protection Program Specifically Impacting Small Businesses

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March 5, 2021

March 5, 2021

Changes to the Paycheck Protection Program (the “PPP”) were announced on February 22, 2021 that specifically impact small businesses with fewer than 20 employees.  These changes were designed to prioritize loans to these specific small businesses.  According to the Small Business Association (the “SBA”), 98% of small businesses employ less than 20 employees.  But, only 45% of small businesses with less than 20 employees have received PPP loans.

One of the biggest changes announced is the implementation of a two-week exclusive application period during which only small businesses with less than 20 employees can apply for PPP loans.  This exclusive application period began on February 24, 2021, and will run through March 9, 2021.  The current PPP application period for all applicants will continue from March 10, 2021 through March 31, 2021.

While the exclusive application period began on February 24, 2021, changes to PPP eligibility were also announced without a specific effective date, with the intention that they would go into effect during the first week of March, 2021.  On March 3, 2021, the SBA released its interim final rule titled Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to Loan Amount Calculation and Eligibility.  With the release of this interim final rule, the additional PPP eligibility changes have become effective immediately on March 3, 2021.

One important change included in the interim final rule is a revision to the PPP loan calculation formula for sole proprietors, independent contractors, and self-employed individuals.  Previously, PPP loan amounts for these individuals were based upon the net profit reported on annual tax returns, which prevented unprofitable individuals from receiving a PPP loan.  Under the new calculation formula, PPP loan amounts can be based on an individual’s gross income.

Additionally, other changes remove prior restrictions on PPP loan eligibility.  The restrictions preventing a small business owner with: (i) a past non-fraud felony conviction; or (ii) a delinquent or defaulted federal student loan from obtaining a PPP loan have been eliminated. Previously, a business was ineligible for a PPP loan if at least 20% of its ownership is held by an individual who: (i) has an arrest or conviction for a felony related to financial assistance fraud within the previous five years; (ii) has any other felony within the previous year; or (iii) is currently delinquent or has defaulted within the last seven years on any federal debt, including a student loan. The updated eligibility guidelines now only prevent a business from obtaining a PPP loan if at least 20% of its ownership is held by an individual who is: (i) presently incarcerated; or (ii) for any felony, presently subject to an indictment, criminal information, arraignment, or other means by which formal criminal charges are brought in any jurisdiction; or (iii) has been convicted of, pleaded guilty or nolo contendere to, or commenced any form of parole or probation (including probation before judgment) for a felony involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance within the last five years.

It is important to note that while the two-week exclusive application period began on February 24, 2021, the changes noted above did not go into effect until March 3, 2021. PPP loan applications are determined based upon the rules in effect when the PPP loan application is submitted.  Thus, only PPP loan applications submitted after the release of the SBA’s interim final rule on March 3, 2021 will be able to take advantage of the changes to eligibility.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at kheinze@walterhav.com or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

New and Temporary Changes to the PPP Loan for Small Businesses


February 26, 2021

February 26, 2021

The Biden Administration recently announced changes to the CARES Act’s paycheck protection program. The paycheck protection program offers forgivable, low-interest loans to businesses to help meet payroll obligations and keep their employees employed.

On February 22, 2021, President Biden announced a two-week window during which only small businesses with fewer than 20 employees can apply for loans. The two-week period began February 24, 2021, and will end on March 9, 2021. This window is a great opportunity for the smallest of small businesses to get the necessary funds to keep their employees on the job.

Other changes to the program include measures to increase racial equity in paycheck protection program lending. These changes are aimed at helping sole proprietors and independent contractors by setting aside at least $1 billion.

Small businesses with cash-flow needs and fewer than 20 employees should consider applying for a paycheck protection program loan during the two-week window. We encourage you to contact the attorneys at Walter | Haverfield to discuss all of your PPP loan program options.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planning, mergers and acquisitions, and tax planning. Mike can be reached at 614-246-2262 or msorice@walterhav.com.

CARES Act Employee Retention Credit – Defining Qualified 2020 and 2021 Paid Wages

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February 22, 2021

February 22, 2021

In response to the economic downturn at the start of the coronavirus pandemic, Congress passed an employee retention credit under Section 2301 of the CARES Act. The employee retention credit is a refundable tax credit for qualified wages paid from March 13, 2020, through June 30, 2021, by eligible employers. But, different rules apply to credits for qualified wages paid in 2020 and qualified wages paid in 2021.

The 2020 Employee Retention Credit

For wages paid in 2020, the credit amount is 50% of qualified wages, taking into account up to $10,000 of qualified wages, yielding a maximum credit of $5,000 per employee. The wages eligible for the credit depend on an employer’s average number of full-time employees in 2019. Under the credit, an eligible employer with more than 100 full-time employees can only take into account the wages paid to the employees who were not providing services during the period the employer is eligible for the credit. But, employers with 100 or fewer full-time employees can take all wages paid into account.

In this previous client alert, we discussed the definition of qualifying wages for the 2020 Employee Retention Credit and how the IRS guidance on the definition differs from the interpretation of the Joint Committee on Taxation. We also contacted an attorney at the Service Chief Counsel Office to discuss the employee retention credit. The Service had released the guidance before the Joint Committee on Taxation released its interpretation, and it recognized that the Service’s position in the guidance was more favorable to taxpayers.

Because the Joint Committee on Taxation and the Service have different interpretations of the 100-employee limit under the employee retention credit, there is a concern that the Service could change its mind to include full-time equivalents in the 100-employee limit. But, there is a reasonable argument that full-time employees do not include full-time equivalents for purposes of the employee retention credit’s 100 employee limit. And, an attorney in the Chief Counsel Office believes that the Service will follow the position the Service took in the FAQs.

Wages Paid in 2021

For wages paid in 2021, the credit amount is 70% of qualified wages, taking into account up to $10,000 of qualified wages per quarter, yielding a maximum credit of $14,000 per employee. And, an eligible employer with fewer than 500 full-time employees can take into account all wages paid during the period the employer is eligible for the credit. See here.

For an employer to be eligible for the employee retention credit, the employer must have been fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19. If an employer’s workplace is closed by a governmental order for certain purposes—but the employer’s workplace may remain open for other purposes, or the employer is able to continue certain operations remotely—then the employer’s operations would be considered to be partially suspended. See here. But, if all of an employer’s business operations may continue—even if subject to a modification—such a modification of operations is not considered to be a partial suspension of business operations, unless the modification has more than a nominal effect on the business operations under the facts and circumstances.

Under the employee retention credit for 2021, an eligible employer with fewer than 500 full-time employees can take into account all wages paid during the partial suspension.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planning, mergers and acquisitions, and tax planning. Mike can be reached at 614-246-2262 or msorice@walterhav.com. 

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

New COVID-19 Stimulus Bill Provides Clarifications and Expansions to the Paycheck Protection Program


December 28, 2020

December 28, 2020 

On Sunday, December 27, 2020, despite voicing initial criticisms of the act, President Trump signed into law the Consolidated Appropriations Act of 2021 (the “Act”). While the Act covers a variety of different fields, it provides much needed clarification, as well as certain expansions, to the Paycheck Protection Program (“PPP”), the immensely popular loan program for struggling small businesses enacted under the Coronavirus Aid, Relief and Economic Security Act back in March of 2020 (“CARES Act”). This alert provides a brief high-level overview of language within the Act that modifies and affects the PPP.

Additional Funding to the PPP and Extension on Deadline to Apply

The Act allocates $284 billion to the U.S. Small Business Association (SBA) in order to facilitate new PPP loans. Prospective PPP borrowers now have until March 31, 2021 to apply for a PPP loan. The SBA has 10 days from December 27, 2020 (the date upon which the President signed the Act into law) to establish any new regulations concerning the administration of this new PPP funding.

Allows Certain Businesses to Apply for a Second PPP Loan

While this new round of PPP funding is available to first-time qualified borrowers, the Act also reopens the PPP for select businesses that previously received PPP funding. Specifically, borrowers that have already received PPP funding are eligible to receive a second round of PPP funding of up to 2.5x their average monthly payroll (capped at $2 million per borrower), so long as they meet the following criteria:

  • The borrower has 300 or fewer employees;
  • The borrower has used or will use the full amount of their first PPP loan; and
  • The borrower can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

In addition, while most borrowers will only be eligible for a loan of up to 2.5x their average monthly payroll, borrowers within the accommodation and food services industries will be eligible to receive a second round of PPP funding of up to 3.5x their monthly average payroll (still capped at $2 million per borrower).

Choice of Covered Period and Expansion to Eligible Expenses

The “covered period” is the time allotted for borrowers to spend PPP loan proceeds on qualified expenses for purposes of forgiveness. The Act gives borrowers the option to choose a “covered period” of 8 or 24 weeks. These options are the same as they were in the first round of PPP funding.

Also similar to the first round of PPP funding, costs eligible for forgiveness include payroll, rent, and certain mortgage, interest, and utility expenses. However, the Act now expands the definition of “eligible expenses” to include supplier costs, covered worker protection and facility modification expenditures (including PPE), as well as certain operating costs, such as software and cloud computing services and accounting needs.

Eligible Expenses Paid with Forgiven PPP Loans Now Tax-Deductible

The Act also officially deems business expenses paid with forgiven PPP loans as tax-deductible, finally putting to bed the argument that has raged on ever since the passage of the CARES Act. While the CARES Act excluded PPP loan forgiveness from gross income, it did not specifically address whether the expenses used to achieve that loan forgiveness would continue to be deductible, even though they otherwise would be deductible. Guidance from both the IRS and the Treasury Department subsequently came out affirmatively stating that such expenses would not be tax deductible. However, experts argued that by passing the CARES Act, Congress intended that these business expenses would be tax deductible. The clarification regarding tax deductions comes as a welcome relief to many PPP borrowers who were uncertain about the deductibility of these expenses.

PPP Eligibility Changes

The Act also expanded and clarified what types of borrowers are eligible for PPP loans. The Act grants eligibility to Sec. 501(c)(6) organizations, so long as they have a) less than 300 employees, b) do not receive more than 15% of receipts from lobbying, c) the lobbying activities do not comprise more than 15% of total activities of the entity and d) the cost of lobbying activities did not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.

In addition, the following types of borrowers have received eligibility rights for the second round of PPP funding:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
  • Sole proprietors, independent contractors, and eligible self-employed individuals.
  • Not-for-profits, including churches.
  • Certain news organizations that were previously ineligible due to affiliation rules.
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

Finally, the Act now excludes publicly traded companies from PPP loan eligibility. As noted in guidance from the SBA and the Department of Treasury following the implementation of the CARES Act, this Act officially codifies Congress’ intent to prohibit large publicly traded companies from receiving PPP funding.

Simplifies Forgiveness Application for PPP Loans Less than $150,000

If a borrower is applying for forgiveness for a PPP loan of less than $150,000, the borrower only needs to make a certification of the change in their gross receipts in order to apply for the loan. The SBA will provide such certification no later than 24 days after December 27, 2020. The certification will be no more than one page in length and will verify the loan recipient’s eligibility to their lender. Simply requiring a certification, rather than supporting documentation, will likely expedite the forgiveness process for smaller PPP loans.

Walter | Haverfield is monitoring the guidance concerning this program closely and is prepared to assist businesses navigate these important, yet complex issues. If you have additional questions, please reach out to us at questions@walterhav.com. We are happy to help.

Scott A. Fishman is an associate at Walter |Haverfield who focuses his practice on business services. He can be reached at sfishman@walterhav.com or at 216-619-7859. 

COVID-19 Economic Relief and the Employee Retention Credit

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December 23, 2020

December 23, 2020

*On Sunday, December 27, President Trump signed the Consolidated Appropriations Act, 2021 (the Act). The Act contains numerous individual, business, payroll, and disaster-related tax provisions that relate to the COVID-19 pandemic. The Act extended and made several changes to the employee retention credit, which we discussed below. the Act’s extension of and changes to the employee retention credit take effect from January 1, 2021.

In response to the economic downturn at the beginning of the coronavirus pandemic, Congress passed an employee retention credit under Section 2301 of the CARES Act. The employee retention credit is a refundable employment tax credit for qualified wages paid from March 13, 2020, through December 31, 2020, by eligible employers.

The credit amount is 50% of qualified wages, taking into account up to $10,000 of qualified wages, yielding a maximum credit of $5,000 per employee. The wages eligible for the credit depend on an employer’s average number of full-time employees in 2019. Under the credit as originally enacted, an eligible employer with more than 100 full-time employees could only take into account the wages paid to employees who were not providing services during the period the employer is eligible for the credit. But, for eligible employers with 100 or fewer full-time employees, all wages paid during the period an employer is eligible for the credit are taken into account. The definition of eligible wages depends, in part, on the average number of full-time employees employed by an eligible employer during 2019.

IRS guidance provides that a full-time employee means an employee who, with respect to any calendar month in 2019, had an average of at least 30 hours of service per week or 130 hours of service in the month, as determined in accordance with Section 4980H. See IRS, COVID-19-Related Employee Retention Credits: Determining Qualified Wages FAQ number 49. The guidance does not specifically address whether employers must include full-time equivalents for determining whether the employers averaged more than 100 full-time employees in 2019.

Several commentators have reported that the IRS guidance differs from the interpretation of the Joint Committee on Taxation. In its report on the CARES Act’s tax provisions, the Joint Committee on Taxation said that full-time employees must include full-time equivalents. See Description of the Tax Provisions of Public Law 116-136, JCX-12E-20 (April 23, 2020), n. 145. The Joint Committee based its interpretation on the language of the CARES Act, which refers to the “average number of full-time employees (within the meaning of section 4980H of the Internal Revenue Code of 1986).” Section 4980H specifically includes full-time equivalents in its definition of full-time employees for purposes of determining whether an employer is a large employer. 26 U.S.C. § 4980H(c)(2)(E).

Importantly, the IRS guidance was not published in the Internal Revenue Bulletin, and the guidance specifically states that it may not be relied upon as legal authority and cannot be used to support a legal argument in a court case. The IRS guidance may not be binding, but it is persuasive and is a good indication of how the IRS will treat taxpayers who apply for the credit. But, there is an argument that the interpretation of the Joint Committee on Taxation is more persuasive than the IRS guidance. The Supreme Court has ruled that, when a federal agency’s interpretation of law is not published under certain specific procedures, the agency’s interpretation is entitled to respect. U.S. v. Mead Corp., 533 U.S. 218 (2001). But, the agency’s interpretation does not control and a court could ultimately side with the Joint Committee on Taxation in interpreting the requirements of the employee retention credit.

On December 21, 2020, however, Congress passed the Consolidated Appropriations Act, 2021 (the “Act”). Among other things, the Act made several changes to the employee retention credit. The Act extends the employee retention credit to July 1, 2021, meaning that an eligible employer can take the credit for wages paid between January 1, 2021, and July 1, 2021. The Act also increases the credit percentage from 50% to 70% and the per-employee limitation from $10,000 for all quarters to $10,000 for any quarter during the extension period. And, the Act modifies the threshold for treatment as a large employer, increasing the threshold to 500 full-time employees. But, the foregoing amendments to the CARES Act apply only to calendar quarters beginning after December 31, 2020. Consequently, the originally-enacted maximum credit and qualified wages definitions apply between March 13, 2020, and December 31, 2020. If President Trump signs the Act, a business with up to 500 full-time and full-time equivalent equivalents could be eligible for the extended employee retention credit.

But, President Trump recently expressed dissatisfaction with the Act and several of its provisions. There is a possibility that President Trump will veto the Act. We are watching out for any changes and will update accordingly.

Mike Sorice is an associate in the Columbus, Ohio office of Walter | Haverfield. He assists closely-held businesses with business succession planning, mergers and acquisitions, and tax planning. Mike can be reached at 614-246-2262 or msorice@walterhav.com. 

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

Paycheck Protection Program: IRS Confirms Expenses Are Not Deductible

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November 19, 2020

November 19, 2020

Our firm continues to stay on top of the Paycheck Protection Program (PPP) and its impact on our business clients, and individual owners of flow-through entities. With some very timely guidance, the U.S. Treasury Department and IRS released direction clarifying the tax treatment of expenses where a PPP loan has not been forgiven by the end of the year, which is most of our clients.

Background Information on PPP

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (“COVID-19”) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide were experiencing economic hardship as a direct result of the federal, state, tribal, and local public health measures that were being taken to minimize the public’s exposure to the virus. These measures, some of which were government-mandated, have been implemented nationwide and include the closures of restaurants, bars, and gyms. In some cases, other measures such as stay-at-home orders were implemented, resulting in a dramatic decrease in economic activity as the public avoided malls, retail stores, and other businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Pub. L. 116-136) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The SBA received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency.

Section 1102 of the CARES Act temporarily permitted the SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” Under the PPP, the borrower must use loan proceeds for certain qualifying expenses, including payroll costs, payments of covered rent obligations, and covered utility payments. Section 1106 of the CARES Act provided for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

On April 24, 2020, the President signed the Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116-139), which provided additional funding and authority for the PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of the PPP relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. On July 4, 2020, the President signed into law S. 4116, which reauthorized lending under the PPP through August 8, 2020 (Pub. L. 116-147).

Deductible or Not Deductible, that is the Question?

According to the IRS, since businesses are not taxed on the proceeds of a forgiven PPP loan, the qualifying expenses are not deductible. The IRS rationalizes this position by claiming that this results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.

In its recent ruling, the IRS ultimately concluded that if a business reasonably believes that a PPP loan will be forgiven in the future, qualifying expenses related to the loan are not deductible, whether the business has filed for forgiveness or not. Therefore, the IRS encourages businesses to file for forgiveness as soon as possible.

According to the IRS, in the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses in the future.

Conclusion

In sum, although this guidance represents much-needed guidance and clarity, it was not unexpected. We have been advising our clients for some time to ensure they are planning for the expectation that certain expenses paid related to the PPP will not be deductible and therefore will result in an increase in tax liability. But, let’s also remember that each of the businesses and their owners benefited tremendously from the use of the PPP loan proceeds. We are working diligently to stay on top of these changes, and will follow-up on any additional guidance.

We would encourage you to review the IRS Revenue Ruling here.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

Paycheck Protection Program Loan Necessity Questionnaire

and
November 4, 2020

November 4, 2020

The Small Business Association (the “SBA”) has begun requesting new and additional information from borrowers of Paycheck Protection Program (“PPP”) loans of $2 million or more, specifically related to the good faith certification. Prior to and since applying for the PPP, borrowers have been concerned about the certification that they were making or have made to obtain the PPP proceeds. The certification required borrowers to confirm: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” The certification is actually a slight paraphrase of the statute’s good faith certification requirement, “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.”

We have been communicating with borrowers for some time to ensure that they have the proper documentation to support their good faith certification, just in case the SBA or IRS comes calling. Well, here is the first indication that the certification may be scrutinized. The category of borrowers that this may impact includes a borrower and any affiliates of the borrower with combined PPP loan totals of at least $2 million.  The SBA is using a new information request form, the Paycheck Protection Program Loan Necessity Questionnaire (the “Necessity Questionnaire”), to request the information from borrowers.

The Necessity Questionnaire for for-profit entities contains two sections, a Business Activity Assessment, and a Liquidity Assessment. The Business Activity Assessment includes questions regarding the borrower’s gross revenue for periods in 2019 and 2020, whether or not the borrower was subject to a governmental shutdown or other government order, whether or not the borrower has changed or altered its operations since March 2020, and whether or not the borrower has begun any new capital improvement projects since March 2020.  The Liquidity Assessment includes questions regarding the borrower’s cash holdings at the time of the PPP loan application, capital distributions made after March 2020, payments of outstanding debt after March 2020, compensation payments to highly-compensated employees after March 2020, the shareholder’s equity value at the time of the PPP loan application, the ownership structure of borrower’s entity, and whether or not the borrower received any other funds from any other governmental program.

Currently, the SBA is not requiring all PPP borrowers of $2 million or more to complete the Necessity Questionnaire.  If the SBA selects a PPP borrower to complete the Necessity Questionnaire, the PPP borrower will receive a copy of the Necessity Questionnaire directly from the lender servicing their PPP loan.  The PPP borrower will then have ten days to complete the Necessity Questionnaire and return it to the lender for submission to the SBA.  A failure to complete the Necessity Questionnaire could cause the SBA to determine that the borrower was ineligible for the PPP loan or any PPP loan forgiveness.

Nardone comment: We strongly encourage borrowers that are requested to complete the Necessity Questionnaire to work with legal counsel to ensure they have all required documentation, and that all information submitted with the Necessity Questionnaire is complete, accurate, and vetted for unintended consequences. This is not something that you should complete without appropriate oversight and counsel.

The SBA has indicated the purpose of the Necessity Questionnaire is to obtain information from a borrower that supports the good-faith certification made by the borrower on the PPP loan application.  The SBA will use the information provided by the borrower on the Necessity Questionnaire to confirm that the PPP loan was necessary due to the borrower’s economic uncertainty.  The SBA has specified that a request to complete the Necessity Questionnaire should not be considered a challenge to a borrower’s good-faith certification.

The lenders that we work with have indicated PPP borrowers should not proactively complete the Necessity Questionnaire, and should wait until they are contacted by their lenders or the SBA to complete the Necessity Questionnaire.  Please contact us if you have questions regarding the Necessity Questionnaire, or if you have received a request to complete the Necessity Questionnaire from your lender.

To the extent you are interested in reviewing the forms, there are two versions of the form; Form 3509 for for-profit borrowers, and Form 3510 for non-profit borrowers.  The Form 3509 can be found here, and the Form 3510 can be found here.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at kheinze@walterhav.com or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

New Ohio Small Business Relief Grant Program Created to Help Small Businesses Harmed by the Effects of COVID-19

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October 28, 2020

October 28, 2020

Ohio Governor Mike DeWine recently designated $125 million in funding received from the federal CARES Act for a small business relief grant program (the “Grant Program”). The Grant Program will provide $10,000 grants to Ohio small businesses that have been negatively impacted by the effects of COVID-19. The Grant Program will help businesses pay for a variety of expenses, including mortgage expenses, salaries, wages, or compensation for employees, and other COVID-related expenses. The Grant Program will begin accepting applications from eligible small businesses on November 2, 2020.

The Grant Program will certainly help Ohio small businesses that are hurting because of COVID-19. But, it is critical that grant applicants follow the Grant Program’s terms and conditions, including conditions related to eligibility, use of funds, and maintenance of records. Otherwise, the State of Ohio can deny grant applications or claw back any funds it distributes.

Only eligible businesses can receive funding from the Grant Program and must meet all of the criteria listed in the application. Eligible businesses can only use the Grant Program funds for certain COVID-related expenses. In addition, businesses that receive funds from the Grant Program must keep records of the specific eligible expenses they incurred for five years from the final expenditure of received funds. For more on the eligibility requirements, use of funds requirements, or the maintenance of records requirements, please visit the Grant Program website terms and conditions section here.

Businesses can start applying for Grant Program funds online here starting November 2, 2020, at 10:00 AM with a new or existing OH|ID. Applicants must provide certain required information during the application process. A list of the required information is available on the Grant Program website here.

Businesses that want to apply for Grant Program funds should start assembling the required documentation now, as the funds will be distributed on a first-come, first-served basis. We would be happy to help small business owners through the process of applying for funds, documenting the use of funds, and complying with the Grant Program’s terms and conditions.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations.

Paycheck Protection Program, Change of Ownership Requirements

and
October 14, 2020

October 14, 2020

On October 2, 2020, the Small Business Administration (the “SBA”) issued a long-awaited procedural notice (the “SBA Notice”) regarding change of ownership for borrowers that participated in the Paycheck Protection Program (“PPP”) loan process. According to the SBA, the purpose of the notice is to provide information concerning the required procedures for changes of ownership of an entity that has received PPP funds (a “PPP borrower”). Thus, for those clients that are planning on selling or buying a business, through assets or equity, and have participated in the PPP, this client alert is for you.

Background Information on PPP

On March 13, 2020, President Trump declared the ongoing Coronavirus Disease 2019 (“COVID-19”) pandemic of sufficient severity and magnitude to warrant an emergency declaration for all states, territories, and the District of Columbia. With the COVID-19 emergency, many small businesses nationwide were experiencing economic hardship as a direct result of the federal, state, tribal, and local public health measures that were being taken to minimize the public’s exposure to the virus. These measures, some of which were government-mandated, have been implemented nationwide and include the closures of restaurants, bars, and gyms. In addition, based on the advice of public health officials, other measures, such as keeping a safe distance from others or even stay-at-home orders, were implemented, resulting in a dramatic decrease in economic activity as the public avoided malls, retail stores, and other businesses.

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (Pub. L. 116-136) to provide emergency assistance and health care response for individuals, families, and businesses affected by the coronavirus pandemic. The SBA received funding and authority through the CARES Act to modify existing loan programs and establish a new loan program to assist small businesses nationwide adversely impacted by the COVID-19 emergency.

Section 1102 of the CARES Act temporarily permitted the SBA to guarantee 100 percent of 7(a) loans under a new program titled the “Paycheck Protection Program.” Section 1106 of the CARES Act provided for forgiveness of up to the full principal amount of qualifying loans guaranteed under the PPP.

On April 24, 2020, the President signed the Paycheck Protection Program and Health Care Enhancement Act (Pub. L. 116-139), which provided additional funding and authority for the PPP. On June 5, 2020, the President signed the Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act) (Pub. L. 116-142), which changed provisions of the PPP relating to the maturity of PPP loans, the deferral of PPP loan payments, and the forgiveness of PPP loans. On July 4, 2020, the President signed into law S. 4116, which reauthorized lending under the PPP through August 8, 2020 (Pub. L. 116-147).

Since July 4, 2020, all interested parties have been seeking guidance from the SBA. This sought out guidance includes questions related to the buy and sell of businesses that availed themselves and participated in the PPP loan process. There are certainly still additional questions about how to comply and how the change of ownership impacts the requirements, when it comes to the buying and selling of businesses. But, with the October 2, 2020 SBA Notice, at least we are beginning to receive some direction on the change of ownership.

Change of Ownership Requirements

For purposes of the PPP, a change of ownership will be considered to have occurred when: (1) at least 20 percent of the common stock or other ownership interest of a PPP borrower—including a publicly traded entity—is sold or otherwise transferred, whether in one or more transactions, including to an affiliate or an existing owner of the entity, (2) the PPP borrower sells or otherwise transfers at least 50 percent of its assets—measured by fair market value—whether in one or more transactions, or (3) a PPP borrower is merged with or into another entity.

Regardless of any change of ownership, the PPP borrower remains responsible for: (1) performance of all obligations under the PPP loan, (2) the certifications made in connection with the PPP loan application, including the certification of economic necessity, and (3) compliance with all other applicable PPP requirements. Additionally, the PPP borrower remains responsible for obtaining, preparing, and retaining all required PPP forms and supporting documentation, and providing those forms and supporting documentation to the PPP lender or lender servicing the PPP loan (referred to as the “PPP Lender”) in the SBA Notice or to the SBA upon request.

Prior to the closing of any change of ownership transaction, the PPP borrower must notify the PPP Lender in writing of the contemplated transaction and provide the PPP Lender with a copy of the proposed agreements or other documents that would effectuate the proposed transaction. The SBA Notice lays out different procedures depending on the circumstances of the change of ownership. We have included a link to the SBA Notice for careful review and consideration here.

Conclusion

In sum, the PPP process continues to be a fluid situation, ever-changing, and guidance continues to come out. We are working diligently to stay on top of these changes, and will follow-up on any additional guidance. We would encourage you to visit the SBA website for prior guidance on the PPP, by clicking here.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at kheinze@walterhav.com or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.

Ohio Department of Medicaid Starts Process to Make Telehealth Services Permanent

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September 17, 2020

September 17, 2020

On September 1, 2020, the Ohio Department of Medicaid (“ODM”) announced it has started the process to make a current temporary rule related to telehealth services permanent. In March 2020, ODM implemented a temporary rule designed to expand the use of telehealth services in response to the COVID-19 pandemic.  Based on a significant increase in the usage of telehealth services, ODM now wishes to make the expansion permanent, and has submitted a proposed permanent rule for review and approval.

Prior to the COVID-19 pandemic, ODM providers submitted less than 1,000 telehealth claims per month for physical health services, and around 4,000 telehealth claims per month for mental health and addiction services.  Since the implementation of the temporary rule, ODM providers have submitted 1.3 million claims for physical health services, and 1.28 million claims for mental health and addiction services.

The proposed rule includes a change in the definition of telehealth.  Formerly, telehealth consisted of health care services provided by secure, synchronous, interactive, real-time electronic communication between the patient and the practitioner with both audio and video elements.  Under the proposed rule, telehealth would now include health care services that are provided via a communication that is asynchronous or that does not have both audio and video elements, including telephone calls, remote patient monitoring, and communication through secure e-mail and patient portals.  Under the previous rule, these activities were not considered telehealth.

The proposed rule also increases the types of practitioners eligible to render telehealth services to ODM patients. Additional eligible practitioners include dentists, optometrists, audiologists, and occupational and physical therapists.  The proposed rule also adds to the types of telehealth services that may be paid for by ODM.  Some of the additional covered telehealth services include:

  1. Remote evaluation of recorded video or images submitted by an established patient;
  2. Virtual check-in by a physician or other qualified health care professional who can report evaluation and management services, when provided to an established patient;
  3. Online digital evaluation and management services, when provided to an established patient;
  4. Remote patient monitoring;
  5. Audiology, speech-language pathology, physical therapy, and occupational therapy services;
  6. Limited or periodic oral evaluation; and
  7. Optometry services.

The proposed rule is currently under review by the Joint Committee on Agency Rule Review, with a hearing scheduled for October 1, 2020.  ODM anticipates the review being completed and the rule being approved before the current temporary rule expires on November 14, 2020.

The significant increase in the amount of ODM patients utilizing telehealth cannot be ignored.  Many healthcare professionals are taking steps to permanently modify their practice operations in order to accommodate the increased demand for telehealth services.

Kari Heinze is an associate in Walter | Haverfield’s Columbus office. She focuses her practice on business services within the healthcare and dental practice arena. Kari can be reached at kheinze@walterhav.com or at 614-246-2266.  

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations. Vince can be reached at 614-246-2264 or vnardone@walterhav.com.