
Last Friday, Congress rammed through the Coronavirus Aid, Relief and Economic Security (CARES) Act. It is a MASSIVE bill, ($2 Trillion+) causing the president to remark that he had never signed anything with a “T” on it before. It was rushed through with surprisingly little debate and is loaded with all kinds of pork to get everyone on board with it. Libertarians think it will be the end of the Republic and progressives think it didn't go far enough. Nobody is entirely happy with it but they all voted for it because they felt something had to be done so now it is law.
This is actually Phase 3 in new laws this month in response to the pandemic:
- Phase 1 was the Coronavirus Preparedness and Response Supplemental Appropriations Act (March 6th). This was $7 Billion mostly to the Department of Health and Human Services, CDC, and FDA to fight the pandemic.
- Phase 2 was the Families First Coronavirus Act (March 18th). This expanded sick leave and family leave provisions.
Today, I'm just going to be discussing the CARES Act itself and what means for high-income earners like doctors. I'm sure to make some mistakes in the post as this is all brand new, I haven't read the entire thing, and I'm not sure anyone has yet read the entire thing. I'll correct my errors as fast as I can right here in this post. Thus, if something sounds weird, be sure to double-check it with a reputable source or at least check back in a few days for any corrections.
The Act is a big stimulus to the economy to counteract the effects of telling everyone to stay at home to fight the coronavirus. It breaks down as follows:
- $560 Billion to Individuals
- $500 Billion to Large Businesses
- $377 Billion to Small Businesses
- $340 Billion to State and Local Governments
- $154 Billion to Public Health
- $44 Billion to Education
- $26 Billion to Safety Net
Let's take each of these sections one by one, describe what they do, and discuss how they might affect my readership of high-income professionals.
Individual Stimulus
The centerpiece of the legislation is the individual stimulus. It is basically a $1,200 check ($2,400 married) plus $500 per child that should show up in your mailbox in about three weeks according to the Secretary of the Treasury. So a family of four will get a check for $3,400.
Many of my readers, unfortunately, will get nothing. This stimulus phases out between $75,000 and $99,000 ($150,000 and $198,000 married) in adjusted gross income. The initial check will be based on your 2018 tax return (2019 if you have already filed it) but in actuality, it is a pre-payment of a tax credit on your 2020 taxes, and so will be adjusted when you file those next year. But med students, residents, fellows, new attendings, low paid doctors married to non-earners, and others in similar situations will get it.
In addition, those who just got laid off and those whose businesses are getting creamed right now are also likely to get it, but not for a year. Planning aspects to take advantage are mostly about lowering your AGI for 2020–i.e. saving more in tax-deferred retirement accounts if your 2020 AGI will be anywhere near the phaseout limits.
In addition to this cash payment, unemployment benefits became much more generous. These are all run through the states, so what you get if you do claim unemployment will vary by state. Basically for the next four months, the benefit will go up by $600 a week and more people will qualify for unemployment benefits for a longer period of time (13 weeks longer). My recent polls suggest as many as 3% of doctors are newly unemployed so a few of you likely qualify for this benefit, too.
Normally, the self-employed don't qualify for unemployment benefits. However, the legislation starts a new program called the Pandemic Unemployment Assistance Program. You'll get the $600 per week, plus half the average unemployment benefit in your state. Remember all unemployment benefits are taxable income. So if you're an independent contractor out of work, you're in luck!
You can also raid your retirement accounts a lot easier. 401(k) loans are expanded from $50K to $100K and, if you want, you can just withdraw up to $100K without paying the 10% penalty, so long as the distribution is “coronavirus-related”, although it appears that exception is so large that nearly everyone fits into it. Obviously, I highly recommend against doing either of these if you can at all avoid it. RMDs are also waived for 2020.
Large Business Stimulus
While this might not help you directly and might even feel like a giveaway to big business, remember that big corporations are really just composed of people–people like you and me and anybody who invests in stocks via mutual funds and 401(k)s. Think of this as a stimulus to your retirement account and it won't bother you as much. This stimulus isn't a gift, it's a loan, and the corporations will have to pay it back.
$58 Billion is loaned just to airlines. That probably explains this:
While I hate seeing government picking winners and losers in the economy, I do want there to still be airlines when this is all over so I won't complain too much about this. Let's be honest, most airlines across the world get significant help from their governments, so I guess it's not that unusual to see US airlines getting help from the US government and its money-printing machine.
In addition to the loans, there is a fully refundable tax credit for businesses of all sizes that are closed or just “distressed” to keep workers on the payroll. It covers up to 50% of payroll on the first $10,000 of compensation including health benefits. The idea with this is that businesses won't fire employees, they'll put them on paid furlough or at least hire them right back as soon as they can. For large businesses (100+ employees) the credit is for wages paid when folks aren't working. Small businesses (<100 employees) don't even have to close to get the credit.
Details include a ban on stock buybacks with the money, public reporting requirements for the loans, a special inspector general to keep an eye on all this, and a ban on members of the administration or Congress from benefitting from this in any special way.So how will these benefits help you? Well, it might keep you from getting fired and it'll certainly help your investments. If you are a partner in a group, the credit for not firing your employees should pass through to you.
Small Business Stimulus
In addition to the tax credit mentioned above, small businesses have a few other special benefits in the CARES Act. There is $10 Billion set aside for “emergency grants” to cover immediate operating costs, up to $10,000 per business. However, to get it you also have to apply for a Small Business Administration (SBA) Economic Injury Disaster Loan. Each small business can borrow 2.5X average monthly payroll expenses over the last year up to $10 Million, at an interest rate no higher than 4%, without any personal collateral or guarantee. Fees, principal, and interest is expected to be deferred for 6-12 months. The amount of that loan that is used for payroll, rent, utilities, and loan interest (including mortgage) for the first 8 weeks could be forgiven tax-free, provided workers stay employed through the end of June.
Wow! Did you hear that? Free money for small business owners! So the goal is to maximize payroll, rent/mortgage, and debt payments between now and the end of June. Talking about moral hazard. MANY of my readers are small business owners and I'm sure over the coming weeks we'll all come up with all kinds of creative ways to maximize this benefit. We run WCI, LLC debt-free, but this sort of benefit has got us thinking about taking out a loan just to get it forgiven. While I think we can borrow something like $250K, it looks like we'd only get something like $60K in actual loan forgiveness, but that sure beats a kick in the teeth. These loans are guaranteed by the government, so there's no reason for a bank not to provide them. I'm sure there will be additional posts coming on this topic but if you want to start thinking about it, the amount of forgiveness is basically 2 months worth of payroll costs up to a payroll cost of $100K/employee.
There is another $17 billion set aside to cover payments on previously existing SBA loans. There is a limitation on how much interest a business can deduct. The CARES Act raises it to 50% from 30%. Net operating losses from 2018-2020 can also be carried back 5 years, allowing you to refile your taxes for those years immediately to get that refund. You can also defer payment of the employer half of payroll taxes through the end of the year. They will be due 50% on December 31st, 2021 and 50% on December 31st, 2022.
State and Local Government Stimulus
This is simply a transfer of money from the federal government to state and local governments. The total is $340 Billion. $274 Billion goes to COVID-19 response efforts, most of which is just a big fat check sent to the states. There is also money specifically directed at Community Development Block Grants, K-12 schools, higher education, and child care centers.
Public Health Stimulus
This section of the CARES Act specifically helps health care organizations. $100 Billion goes to hospitals, $1.3 Billion goes to Community Health Centers, $11 Billion for tests, treatments, and vaccines, $80 Million to the FDA to approve new drugs, $4.3 Billion to the CDC, $20 Billion to the Veteran's Administration, $16 Billion to the Strategic National Stockpile, and the extension of a telehealth program.
Maybe some of this money will flow through to individual doctors, but mostly this section is about fighting the pandemic itself. I mean, if we're going to spend $2 Trillion, we might as well put 8% or so of that toward the actual war we're fighting, right?
Education Stimulus
Most of this could be included in the individual stimulus package. The biggest part is that all federally-owned student loans have both payments and interest waived from now through September 30th. Those of you going for Public Service Loan Forgiveness basically get 6 free payments toward your 120 qualifying payments. While this is a terrible development for businesses like The White Coat Investor, LLC and our student loan refinancing partners, it's certainly a great benefit for many, many doctors. 25-33% Of doctors have student loans and most of them are federal. We'll have some future posts discussing how this should affect student loan management, but the bottom line is if you were thinking about refinancing from federal loans to private loans, you will probably want to hold off a few months.
Other benefits including work-study payments are now just grants (free money). Undergraduates who dropped out of school due to the pandemic, you won't lose eligibility time for Pell Grants or subsidized loans. Arts programs, universities, and other institutions of higher learning are also getting “stimulated.”
Safety Net Stimulus
$8.8 Billion will go toward school lunches. $15.5 Billion will go to the Supplemental Nutrition Assistance Program, i.e Food Stamps. Indian reservations and non-state territories will also get nutrition assistance. $450 Million will go to food banks.
Miscellaneous Benefits
The legislation also does a few other things, such as delaying your tax return and tax payment date for 2019 to July 15th. 1Q estimated tax payments also due July 15th, but 2Q estimated tax payments are still due June 15th. Many states are also requiring pushing their tax due dates back. This is changing rapidly, so check with your own state taxing authorities. Required Minimum Distributions (RMDs) are also suspended for 2020. Employers are now permitted to pay your student loan payments, up to $5,250, using pre-tax dollars. Normally that is taxable income to you. Good luck talking your employer into adding benefits right now though…unless you're your own employer, in which case, this could be a worth a couple thousand dollars to you. It also requires insurance companies to cover COVID-19 treatments (debatable whether they really exist yet), COVID-19 vaccines (definitely don't exist yet), and COVID-19 tests. The Act also waives airplane ticket excise taxes for any trips done during the rest of 2020.
Real estate investors also have a new tax benefit. This is the one news articles are calling the tax break for the 1%. It used to be that you could only use real estate depreciation to offset up to $500K in capital gains per year. That's now unlimited for 2020 AND for 2018 and 2019 (but you'd obviously have to refile 2018 and maybe 2019 to get it.) I don't think very many of my readers are going to see much benefit here.
Charity supporters have a new tax benefit too. If you don't itemize, you can take up to $300 in charitable donations as an above the line deduction, although that money can't go into your Donor Advised Fund or Foundation. The limitation on how much of your income that you can deduct (normally 50%) is also eliminated, but just for 2020.
Money for everybody! How exciting! I have no idea if it is smart to spend all this money on stimulating the economy right now or not. I'll leave that question in the hands of the economists. I also have no idea whether the way the money is being distributed is fair or not. I'll leave that question in the hands of the politicians and voters. Where is the money coming from? Well, it's basically being printed by the government. Will that lead to inflation? Under normal circumstances, probably. In the face of a massive recession? Perhaps the inflationary and deflationary effects will simply offset each other. We'll see. In the meantime, make sure you get what you're owed and adjust your written financial plan as appropriate under these new laws.
Whew! There's a lot there. Obviously there will be some follow-up posts discussing specific strategies now available under the CARES Act. Also, check back on this post for any updates and corrections.
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What do you think of the CARES Act? What provisions do you expect to be able to take advantage of?
How are “retirement benefits” defined? Do employer profit sharing contributions count? Seeing that 8 weeks of payroll may be forgiven, which includes retirement benefits, perhaps physicians should max out their profit sharing contributions over those 8 weeks? What do people think?
Also, for utilities, how about physician reimbursed cellphone and internet service fees?
I don’t know about the employer portion. Good question.
Another good question. Don’t know.
Appreciate the quick summary on the CARES Act! As a fourth year student who was otherwise planning on refinancing post-Match, I look forward to seeing what future posts will have to say about my situation. I’m going to defer refinancing for now aside from maybe some higher interest private loans, but I am curious how the loss of business and hurting economy will impact refinancing companies. I can’t imagine passing up on 0% interest, but at the same time I know your refinancing guide for students mentioned that historically there have been periods where refinancing wasn’t an option. Do you imagine we could be heading towards the setup for refinancing not being an option if the economy continues to downtrend? I did a brief estimate on how much interest would generate over a 5 year repayment period if I refinanced today vs. the interest that would generate with 0% interest for 6 months to a year with my loans never being able to be refinanced (remaining at federal rates indefinitely), and still felt the 0% interest was worth the risk. If I calculated correctly, it seemed like I’d still come out $6.5-13k ahead (depending on how long the 0% lasts) over the 5 years I estimate it will take my husband and I to pay off my loans.
Similarly, I plan on renting during my 3 year residency, but I’m sure plenty of my colleagues would also be curious about how this economy changes the renting vs. buying dilemma for them. Sounds like the makings of a very helpful blog post!
Yes, you should still refinance your private loans. Can’t blame you for holding the federal ones for now though. That’s what most residents do anyway, even without the 0% thing going right now.
Good point that refinancing could go away I suppose. Hadn’t considered that argument.
I don’t think it really changes a thing with the buy vs rent thing though.
But don’t federal student loan still have forbearance for a number of years during residency? With no interest accruing?
It’s basically an interest free loan over those years.
Am I missing something?
Yes. You’re dreaming up some kind of weird interest free period in residency that doesn’t exist.
Student loan repayment gets complex rather quickly. There are federal subsidized student loans and federal nonsubsidized student loans. it only applies to the first type. But there clearly are interest-free periods of deferment.
I made no payments on my student loans during residency as I did a military Residency. Active-duty soldiers do not have interest accrue on their loans during this time.
If paying the loans during residency presents an “undue hardship”, federally subsidized loans may be deferred with no interest accruing. Given the size of medical school loans and the amount of resident gets paid, this is not that uncommon a scenario.
I do believe there’s a limit to how many years they will do Allow this type of deferment though.
This is one of many articles talking about it.
https://www.fool.com/student-loans/student-loan-deferment-vs-forbearance-whats-the-difference/
Can someone making 1099 income but not incorporated into an LLC apply for an EIDL loan?
Yes, as a sole proprietor, you are eligible both for SBA’s EIDL as well as PPP Loan.
First, you don’t incorporate into an LLC. You form an LLC. You incorporate into a corporation.
Second, I think so, but I need to dedicate a post pronto to just the small business stimuluses.
I would be interested in seeing you target your next reader poll at business/practice owners who are eligible to use the EIDL program to receive grant money. Buckets could include:
– “Yes I plan to apply for and accept an EIDL grant/loan – I have had serious business reduction due to the COVID-19 impact”
– “Yes I plan to apply for and accept an EIDL grant/loan – I have had NO business reduction due to the COVID-19 impact”
– “No I do not plan to apply for or accept grants/loans”
You can create other buckets if you want. It sounds like you are leaning toward the second option.
I’m not even close to # 2. I’m definitely in # 1. We’re going to have MUCH lower revenue this summer than last.
Jim, first of all- your write-up is terrific and on-point for those of us interested in how this might help us. And you did this without all the answers yet. Banks are still figuring this out.
Also, I should have been more specific with my survey poll since MANY (if not most) businesses will see lower revenue this summer, as you mention yours will. For my poll category #1, I am talking about businesses that are pressured to layoff employees due to COVID-19, not just take the revenue hit. As it says on the benefits.gov website, “EIDLs do not replace lost sales or revenue.”. I was under the impression from your statement “this sort of benefit has got us thinking about taking out a loan just to get it forgiven.” That would imply taking the 10k emergency grant as well. Sincere apologies if I read your post wrong.
Would be an interesting poll.
It would be an interesting poll. I can throw it onto my follow-up post.
Hi! I’m a locums anesthesiologist, sole proprietor, 1099s with the groups I work for. I have a nanny to care for my two kids. She got pneumonia middle of spring break, probably COVID-19 but no one would test her, she’s still sick actually and now I’m out of work because no elective surgery is happening. So am I an Eligible Employer for the employee tax credit and for the credit for employee sick leave to apply to her wages? I want to find a way to keep paying her but obviously I am not making income myself right now.
No. Just had a reader look into this and you won’t qualify. Sorry.
https://home.treasury.gov/system/files/136/PPP–IFRN%20FINAL.pdf
Any thoughts on if pension plan contributions will be allowed under the PAYCHECK PROTECTION PROGRAM (PPP). The guidance says retirement plan contributions but does this include all ERISA plans?
I think so, but I’m no authority on this brand new law.
On EIDL application. From what I understand Cost of Good Sold is generally $0 if you are in a service industry like medicine (no inventory). Is that your understanding? I’m a radiologist with 1099 income. I suppose if you are someone who provides a physical product like an orthopedic surgeon this would be different.
I saw this questions asked in the forum seem relevant to bring up here. Can you apply for unemployment if your side hustle (1099) dried up but you still collect W2?
https://www.irs.gov/pub/irs-pdf/p334.pdf “If you make or buy goods to sell, you can deduct the cost of goods sold from your gross receipts on Schedule C. However, to determine these costs, you must value your inventory at the beginning and end of each tax year. This chapter applies to you if you are a manufacturer, wholesaler, or retailer or if you are engaged in any business that makes, buys, or sells goods to produce income. This chapter does not apply to a personal service business, such as the business of a doctor, lawyer, carpenter, or painter. However, if you work in a personal service business and also sell or charge for the materials and supplies normally used in your business, this chapter applies to you.”
I haven’t filled out or even seen that application, but yes, that sounds right to me.
Normally, losing IC work doesn’t qualify, but under the CARES Act there is a provision for you called the Pandemic Unemployment Assistance Program as noted above.
Would love to see a FAQ on how to fill out an application for the Paycheck Protection Program, especially for Independent Contractors.
Great idea for a post.
ToeCutter, the most important differences for independent contractors are:
1. they are not to be included in the payroll cost calculation for the practice or entity that uses them. Instead, ICs get to apply for their own PPP loan
2. Use your net income from your Profit and Loss Stm (or 2019 Tax return if you’ve filed already) up to a max of $100k annualized
3. Add on health insurance premiums to it, if applicable
4. Retirement benefits do not seem to count in the calculation for ICs/self employed.
Here is a calculator from AICPA for calculation of maximum loan amount, including for self employed. https://www.aicpa.org/content/dam/aicpa/interestareas/privatecompaniespracticesection/qualityservicesdelivery/ussba/downloadabledocuments/ppp-loan-calculator-non-seasonal-operational-in-2019.xlsx
I’m wondering where they see that retirement benefits don’t count for self-employed.
My accountant and local bank I’m applying through do not seem to agree with that.
Hi Lee,
I’m seeing that in the 3rd tab (calculate payroll costs) of the attachment. About halfway down is the segment for self-employed/sole prop. And it says:
-Net earnings
-Health insurance
How I’m reading it is: if I make $300k of net IC income, I am limited to $100k of it. Or $8333 avg monthly. Add to it my health insurance premiums. 2.5 x that sum.
If I had maxed out and put in $56k into my Solo 401k last yr, I dont get to add in $56k/12 into the calculation because it’s kind of double dipping.
But this is solely my layperson opinion- not giving tax/legal advice.
I would love to see this spelled out somewhere, but have not come across it in my reading. How is your accountant seeing it?
Thanks,
PFB
My accountant and my bank are both telling us to figure the retire benefit of our SEP into the calculation.
Good for you! After all your bank is the one who is giving you the loan- it needs to conform with what they deem to be right. There are so many grey areas in this Act that every bank is doing things slightly different.
Q: it does increase your max loan amount, but will it also increase your loan forgiveness? Even if it doesn’t though, it’s a 1% loan.
Thank you for the update, it may help others in the same boat.
-PFB
You definitely need a new accountant, or kindly direct them to the PPP language which specifically states that ICs/sole proprietors/self-employed are eligible. You should not let him/her cause a delay in applying for EIDL and PPP. The funds for PPP are already dried up right now, but you should be ready for the second round. Get with your business lender to be ready for the next round of funding. I would also contact your local smaller banks since they have been the most successful at obtaining PPP funds (the big boys like BoA, Chase, Wells Fargo seem to be prioritizing the bigger small businesses and they closed their applications pretty early on). You can apply from as many banks as you want, but only sign 1 promissory note, if you are lucky enough to get one.
My accountant is telling me that PPP doesn’t apply to me bc I don’t have employees which seems to be contrary to what everyone is saying here. A how-to guide for 1099 income / independent contractors would be very helpful. I can do half of the Chase form for PPP but not sure what to do about questions like Are you an Eligible Passive Company?
Hi Tom, I’m surprised to hear your accountant’s interpretation that you are not eligible for PPP loan bc you do not have employees. In fact, the Interim final Rule expressly stated that ICs were not to be included in the payroll costs of employers so that ICs could apply for their own PPP loans. But that starts only on April 10th- for all ICs/Sole prop w/o employees.
A quick Google search reveals that “SBA defines an “Eligible Passive Company” or “EPC” as an entity that does not engage in regular and continuous business activity, which leases real or personal property to an Operating Company for use in the Operating Company’s business.”. So doesnt sound like you are one. Hopefully the banks will come out with a modified version of the application form for ICs/self empl w/o employees.
I’m not an expert on Chase’s forms. Sorry. What does your banker or accountant say?
You are definitely eligible. See my comment above to another person who’s accountant said they weren’t. Get ready for the next round of PPP funding. Looks like you are using Chase—contact your local smaller banks, they will be grateful for your business and they are probably more likely to get you those PPP funds.
If we have had our hours reduced, can we still get the $600/week. Currently live in LA? Is this the same for NY? Thanks Jim!
I’m not Jim, but yes, you are eligible for the unemployment assistance even with reduction in hours. It is a Federal govt program, so the same in all states. But it’s on top of whatever your state will give you- and that part varies widely.
-PFB
Student loan repayment gets complex rather quickly. There are federal subsidized student loans and federal nonsubsidized student loans. Deferment without interest accruing is only possible with the first type. But there clearly are interest-free periods of deferment. Nothing “weird” about it.
I made no payments on my student loans during residency as I did a military Residency. Active-duty soldiers do not make payments nor have interest accrue on their loans during this time. I was only awarded a three-year HPSP.
If paying the loans during residency presents an “undue hardship”, federally subsidized loans may be deferred with no interest accruing. Given the size of medical school loans and the amount a resident gets paid, this is not that uncommon of a scenario.
I do believe there’s a limit to how many years they will allow this type of deferment though.
This is one of many articles talking about it.
https://www.fool.com/student-loans/student-loan-deferment-vs-forbearance-whats-the-difference/
Med students haven’t been able to get subsidized loans since 2012.
Thanks for all the info.
A couple of questions
1. To confirm we can apply for the EIDL grant/loan and the PPP correct? My understanding is that you can get the EIDL Loan/Grant and the PPP as long as they are reimbursing for different items. PPP has to be 75% for payroll to be forgiven so it would make sense to have that go to predominantly payroll and then you could have the EIDL reimbursement go to rent, supplies etc.
2. Is there anything in the PPP that reduces the amount forgiven based on your current receipts. For example and for simplicity, lets suppose I am a solo physician, my billing is down 50% and my annual employee payroll is 120K and my salary is 120K. In this model, 2.5 months of employee costs would be 25K (10k per month x 2.5) and my salary is capped at 100K so 2.5 x 8.3K is 20.7K so most I could apply for is about 46K.
The question, is will I be forgiven for the 2 months of employees -20K. Or is the SBA going to say that my receipts are 50% of the normal so I should be able to pay 50% of their salary and they are only going to forgive 10K.
Thanks.
Hi Anthony,
1. It appears you could apply for both EIDL and PPP loans before April 3rd- and then have the EIDL principal rolled into/refinanced into the PPP loan. It is not clear whether after April 3rd (when PPP was launched), if you can still apply for both loans. It is not spelled out in the language anywhere but has been interpreted as such by several people.
2. As long as you’re paying your employees the same as before, you will get forgiveness for actual payroll costs incurred in the 8 wks following the loan, irrespective of your business revenue.
Hope this helps,
PFB
President trump said the money is being borrowed from China I think! If I were him, since this big bad bug came from China and according to Dr. Birx(China hid the data) should we really pay it back? He had said yesterday( Sunday) that he has been watching the doctors and nurses work through this pandemic and he is amazed at the dedication that we all have in taking care of our patients and at the same time putting ourselves at risk! He said that he wanted to do something special for the doctors and nurses at the conclusion of this pandemic! ( I am semi-retired now and working part-time at the VA teaching our residents who are scared to death of this virus) In 2010, I was in private practice and the swine flu epidemic hit and killed 17,000 people and we were all ready going through a recession which was terrible! I never got any help with my small business from the Obama administration. Have your corporate CPA work through this entire bill so you can take advantage of it! I think the loan is forgiven if you keep your employees up to the end of June! Good luck everyone!!!!
I am an ER doctor working as an IC through my own S-corp receiving 1099 pay. My income is down considerably this year due to a contract not being renewed. I am credentialing at another hospital but with the pandemic I am not picking up shifts until at least June (by choice). Are there scenarios where I would be eligible for either an EIDL, PPP, or both?
Yes.
Great post!
At the risk of getting lost in the weeds, wondering if anyone knows whether applying for an EIDL loan/grant invalidates section 2032 of the CARES act (which permits delay of payment of Employer Payroll Tax)?
Many thanks and good luck to everyone!
EIDL does not invalidate. Forgiveness of debt under PPP invalidates.
That’s interesting. Can you cite chapter and verse?
I have seen the same interpretation on several tax professional websites. I know it is not the same thing as coming from the source.
I have not found a reference from IRS re: the deferral of payroll tax but IRS.Gov does say it regarding a different tax provision (the Employee Retention Credit)- that getting the PPP Loan makes you ineligible for the employee retention credit: https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act. It makes no mention of the EIDL though. It’s all clear as mud.
Sorry if this was not helpful.
PFB
I’m with you. Just trying to sort through all the conflicting information out there. It’s all brand new and to make matters worse, on a very short timeline.
I always go back to the law. The CARES Act is clear.
SEC. 2302. DELAY OF PAYMENT OF EMPLOYER PAYROLL TAXES.
(a) In General.—
(1) TAXES.—Notwithstanding any other provision of law, the payment for applicable employment taxes for the payroll tax deferral period shall not be due before the applicable date.
(2) DEPOSITS.—Notwithstanding section 6302 of the Internal Revenue Code of 1986, an employer shall be treated as having timely made all deposits of applicable employment taxes that are required to be made (without regard to this section) for such taxes during the payroll tax deferral period if all such deposits are made not later than the applicable date.
(3) EXCEPTION.—This subsection shall not apply to any taxpayer if such taxpayer has had indebtedness forgiven under section 1106 of this Act with respect to a loan under paragraph (36) of section 7(a) of the Small Business Act (15 U.S.C. 636(a)), as added by section 1102 of this Act, or indebtedness forgiven under section 1109 of this Act.
Appreciate it.
I haven’t heard that, but again, haven’t read the entire CARES Act.
So the eidl is codified in section 2302 of the cares act. The language from the bill (posted above- thank you!) refers I think explicitly to sections of the cares act codifying the ppp loan (1106 and 1109).
That is the reason why I asked about eidl as it may or may not relate to delay of payment of employer payroll tax.
??
I asked this in another blog post, but I think its more fitting here and I am still struggling to understand why there is a need as a graduating medical student who is not pursuing PSLF to rush to apply for REPAYE. Can you me understand what I am missing?
THANK YOU!
The main reason is PSLF. The secondary reason is to have up to half of your unpaid interest waived. During that 6 month “grace period” after med school the interest is still accumulating.
Soon to be intern, headed for PSLF.
Any ideas of what to do with 150k in an old 403b? (other than sending it ur way :))
Should have converted to a roth during med school but missed that chance.
I’d convert some of it during residency if I could afford the taxes. You can probably roll it into a residency 401k or just leave it there.
I know your position on resident-own housing and am with you 100%. It is such a weird, emotional decision that i too almost fell for (till i read your blog). But, now that i’ve cooled my heels, might this be a good time for a real state investment and maybe lowering the tax burden a bit. Not looking to cheat the system; just educating myself about the most tax efficient use of these savings.
My residency location is a place where i could definitely see my future in (academics).
Sorry, ‘might this be a good time for a real estate investment’?
It might be (crystal ball cloudy), but I doubt that’s the best use of your time and money as a resident.
Haha, i trust your crystal ball.
Thank you for your time, Dr. Dahle!
Thank you for the info.
Got an email from HHS stating the practice would get the “CARES Act Provider Relief Fund”.
Not sure if I need to report this funding as an income on 2020 tax return.
Any thought?
Thank you.
I would expect so, but not sure.
When you apply for the SBA loan can one include any payments towards a loan or line of credit that the medical practice may have and up to what amount. Thank you
That part isn’t forgivable. New post out Monday on it.
Hi WCI, what is the case with W-2 employed physicians? Can they claim anything if they make more than 75k/single or 150k/household of 2? Thanks
You mean do they qualify for any stimulus money? Not really. They make too much for the individual stimulus and they don’t own a business. Once more, high income employees get the short end of the stick.
This is informative one.
Thanks for sharing.
Does anyone know if the PPP loans can be used to hire NEW employees? Our business was incorporated in Feb 2018 and (sadly) still generates no revenue but serves as an important information sharing platform for Neonatology Fellows seeking career planning tools. We currently offer all of these resources for free, and plan to continue as such, but may perhaps begin selling some carefully curated affiliate advertising now that our web traffic is up. We really need to hire a software developer for some programming needs, and I would love to be able to use the PPP to offer some work opportunities to a couple gig workers that have been laid off elsewhere. Since we are still in a non-revenue-generating phase of our business plan, the PPP would be a great way for us to jump start this process. Anyone know much about this, or where I might look for more info? I couldn’t find much about new hires on the US SBA website. Thanks!
You can use the loan for whatever you want. But if you want it FORGIVEN, then it has to go to payroll costs (at least 75%).
I think the forgiveness amount is based on payroll costs on Feb 15th though, so if you didn’t have any, then you’re not going to get anything forgiven. Probably a no go in your situation.
Thanks for the quick reply. I kind of thought that might be the case. Major bummer, though. We would have just passed through the entire amount to provide an employment opportunity for someone, yet still achieved a need for our business. Would be win-win even if we didn’t keep a dollar. Guess those are the rules, though. Thanks again!
I haven’t seen the answer to this question yet. What if your income is substantially different in 2019 as compared to 2018? I am finishing up training. I delayed filing taxes for 2019 to make my traditional IRA contribution. I did a lot of moonlighting in 2018. I did very little in 2019. I already got a check (which I’m of course appreciative of) from the IRS. Should I contact the IRS after filing my 2019 taxes?
Any input would be appreciated.
No need to contact them. If your 2020 income is too high you’ll just pay it back in April 2021.
This is a small addition, but just wanted to let you know that the CARES act also changed HSA eligible items – OTC meds and menstrual products are now covered
That’s nice, but I agree it won’t move the needle for most.
Just filled out the new CARES provider relief fund. This is round two of HHS payments going directly to hospitals and private practice owners. This round, they are asking providers to attest using docusign, providing TIN, medicare ID, tax information and so forth. I wonder how long this will take and if it will be more less or same as the first grant.
– It is supposed to be released within 10 days once the application is received/approved.
– Unfortunately, no direction is available re: the formula they will use to determine payout. With them asking for gross receipts and estimated revenue loss this year, it is presumed it may be related to overall turnout and relative losses incurred. But it is anyone’s guess. As people’s grant start coming through, things will get clearer.
https://physicianfinancebasics.com/other-coronavirus-relief-measures-for-physician-practices/#General-distribution