Filing 1099 Forms

Filing 1099 Forms

Between complex rules and changes in filing requirements over the years, there is a lot of confusion around 1099s.  This article covers, who is required to file 1099s, to whom they need to be issued, when they are due, and a few related resources to help you with how to file them.


Who Needs to Issue 1099s

If you have a small business, are self-employed, or own a rental property treated as a business, then you are required to issue 1099s.  This includes sole proprietors, corporations, partnership, LLCs, nonprofits, and individual rental property owners.  Individuals making personal payments are not required to issue 1099s.


Rental Property Owners

The requirement for rental property owners is new – it started in 2018 with the creation of the Qualified Business Income Deduction (QBID). The QBID allows taxpayers to deduct 20% of qualified business income from their taxes, thus reducing the amount of taxable income and income tax to pay.

The QBID applies to sole proprietorships, s-corporations, partnerships, and sometimes rental properties.  Rental properties qualify for this deduction if they qualify as a business.  The IRS has not provided definitive, black & white guidance as to when a rental property qualifies as a business (as of the date of publishing this article). So, it has been left to taxpayers and their tax advisors to make this judgment.

At Thrive Business Group, we use a few simple tests to determine if a rental property qualifies as a business for the purposes of the QBID and therefore the requirement to issue 1099s.

  1. In owning the rental property, is your intention to make a profit?
  2. Do you (or an agent such as a property manager) engage in regular and considerable activity on the rental property?

If you can answer yes to both of the above, then most likely your rental property qualifies as a business in this context and you are required to file 1099s.  If you are still not sure, err on the side of caution and issue 1099s.  If you claim the QBID on your rental income, then you are required to file 1099s.


To Whom 1099s are issued

1099s are issued to any business or individual that your business or rental property has paid $600 or more for any kind of service or rent.

Many small business owners believe that 1099s are only issued to subcontractors, however this requirement is much broader, extending to all service provider payments and rent payments (including real estate/property rent, machinery rent, and pasture rent).

There are some additional special payment types that are required to be reported on 1099s, however they are uncommon and quite specialized and therefore not addressed here.



There are a few exceptions to be aware of.  Although this is not a comprehensive list of exceptions and special cases, it covers the most common scenarios in small business.

  • If the business you have paid is taxed as a corporation, you are not required to issue a 1099 (unless they are an attorney or law firm, then they still need a 1099). See the discussion below about how to know if a business is taxed as a corporation or not, especially for payments to LLCs.
  • If the organization you have paid is a tax-exempt nonprofit, you are not required to issue a 1099.
  • If you have paid using a credit card, Paypal, Venmo, Square, Stripe, or similar electronic processing service, you are not required to issue a 1099.
  • If you paid rent to a realtor or property manager, you are not required to issue a 1099.


When to file 1099s

Beginning 1/1/2020, there are two 1099 forms commonly used in small business, with two different filing due dates.

Form 1099-NEC is due by 1/31. This form is used for all service provider payments, except attorneys.

Form 1099-MISC is due by 2/28 when filed on paper or 3/31 when filed electronically. This form is used for all rent payments and payments to attorneys.


How to file 1099s

The first step is to gather the information you need for preparing the 1099s.  You will need to have a Form W-9 completed by the business or individual you will be sending the 1099 to.  This is how you obtain their legal name, address, and tax ID number.  This is also how you find out if an LLC is taxed as a corporation (and therefore exempt from the 1099 requirement) – they are required to indicate their tax classification on the form.

A best practice is to obtain a W-9 form from each applicable payee at the time you issue your very first payment to them during the year.  Don’t wait until December or January to request this information. It will leave you scrambling when you have a tight deadline.  We also recommend that you review your records in November to double check that you have all W-9 forms you need and obtain any missing forms.

I recommend using an online filing service for preparing and filing 1099 forms.  The IRS makes pdf forms available online for download, but they are not compliant for printing and mailing to the IRS.  You can also request compliant forms to be mailed to you from the IRS, but this can take several weeks (or months) to arrive.  Purchasing compliant forms from an office supply store can be costly.

Using the QuickBooks 1099 service only yields accurate results when set up correctly and all applicable payments are recorded correctly, which is rare (it’s very easy to have just one payment recorded slightly differently to yield an incorrect 1099). Their service also tends to cost a bit more than other options.

Online filing services solve all of these issues and are very inexpensive, generally charging less than $5 per 1099 form.  An online service will use the data you enter to mail (or email) the 1099 to the recipient and file the government copies electronically with the IRS.

There are many online filing services available – a few are listed below. Thrive Business Group has no affiliation with any particular service and makes no specific recommendations or assurances as to their service.


Putting It All Together

As you can see, 1099 compliance is a bit more complex than just issuing 1099s for subcontractors.  However, it doesn’t have to be a burden.  With proper understanding of the 1099 filing requirements, being proactive in obtaining W-9 forms throughout the year, and using an online filing service, it can be relatively quick and inexpensive to file all required 1099 forms.


EIDL Loan Basics

I’m starting to hear reports of a few clients receiving EIDL loan funds from the SBA, and we are receiving questions on this program, so here are the basics:

The EIDL loan proceeds are intended to pay for your normal operating costs of doing business to keep you open & in business when you otherwise would not be able to pay those costs due to COVID-19.

Loan amounts vary (I don’t know how they come up with the amount they offer). Interest is 3.75%, payments are deferred for 12 months, and terms vary (I’m mostly hearing 15 – 30 year terms). The EIDL also provides an advance of $1,000 per employee up to $10,000 that is the forgivable portion of the loan.

It is appropriate to use these funds for operating costs such as payroll, rent, supplies, utilities, insurance, technology, and all of the other normal operating costs of running a business.  This only applies to the costs of the business that received the loan – so if you have multiple businesses, you cannot use one EIDL loan to cover costs in the other business, you would need an EIDL loan for each business.

If you have both an EIDL and PPP loan, you can only use the EIDL to cover PPP qualifying expenses after the PPP funds have been exhausted, and any EIDL Advance will decrease the amount of the PPP that is forgiven.

The EIDL loan funds can NOT be used for refinancing other debts, paying off other debts, making loan payments on other federal debts, repairing physical damages, paying IRS tax penalties, paying out dividends/draws to owners, or business expansion into new projects or new lines of business.

If you have further detailed questions about how your specific loan works or what can & cannot be covered with the proceeds, please contact the SBA loan officer working with you.  They are your best source of detailed information for your specific loan.


B. Siobhan Q. Murphy
Thrive Business Group



[Last updated 1/29/2021]

2020 Business Return Tax Preparation

For C Corps, S Corps and Partnerships, we need your completed tax packet and relevant data by Friday February 5th

If you would like us to file an extension with the IRS to file your business tax return we need your request by Friday February 26th.


2020 Individual (1040) Tax Return Preparation

To file by April 15th we need your completed tax packet and relevant data by Friday March 5th

If you would like us to file an extension with the IRS to file your personal tax return we need your request by Monday March 22nd.


Deadlines - Spring 2021 (with extensions)


E-signing OfficeTools Documents FAQ


Instructions:  E-signing Documents

#1) You will get an email from with a link to create a pin

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#2) When you click on that link you will see this screen. (Your PIN can only be digits not letters.)

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#3) If it worked, you will see this screen:

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#4) Now you will get an email that you have a document to sign. You have to set up your pin BEFORE you are notified that there is something to sign.

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#5) When you click on the link to sign the document you will see this screen and will need to enter the pin you set up:

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#6) If it is an IRS compliant signature document (such as an Efile) then you will see this screen asking a few questions to confirm your identity for IRS compliance. The 3rd question can vary but will have to do with your address in some way.

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#7) Then you will need to accept the e-signature agreement

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#8) Then the document will open and there will be a yellow arrow showing you where you need to sign.

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#9) Then you will need to click the green button to finish signing the document

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#10) You will get this notice that you have successfully signed the document

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If you are the only one signing the document, then the Thrive staff member that initiated the e-sign will get an email that it was successful and will be able to access the signed document.

If someone else also needs to sign the same document, then this process starts over with the second signer. NOTE: The second person does not get notified in their email until the first person has successfully signed. The Thrive staff member does not get notified until both signers have successfully signed.




I was told I have something to sign but I don’t see anything in my email?

The first step is to create a PIN. Look for an email from with a link to create a PIN. This may have gone to your junk/spam folder so check there if you don’t see it in your inbox.

Another possibility, is that if two people need to sign the document, the first person needs to sign before the second person is notified. The first person may not have signed yet.


I see the signature document in my portal but I can’t sign it?

The e-sign process does not happen in the portal. It will be through your e-mail and does not require you to sign in to your portal account. We have uploaded a pdf of the signature page to your portal if you would like to print it out and sign a paper version instead of e-signing.


I am trying to create a PIN but it is giving me an error message that my name doesn’t match?

It must match what is in our database. You can contact us if there is any confusion on what first and last name we may have entered for you.  If you have an apostrophe in your name, it can cause an issue. Try without the apostrophe.


I forgot my PIN. How do I access the document?

Click on the “Forgot your pin?” link underneath where it asks you to enter your PIN. This will let you reset your PIN.


I have answered all of the identity questions correctly but it is giving me an error message?

It must match what is in our database to be successful. We may have something entered incorrectly. You can contact us and we will confirm that your answers match what is in our database.

PPP Loan & Stimulus Payment Updates 5.12.2020

There have been a few significant changes in some of the rules on the PPP loans and stimulus payments, that I thought it prudent to send out the overview below.  I wish I had more clear, definitive information to share.  Unfortunately, even the definitive statements published by the IRS are subject to change.



Stimulus Check Repayments

When the stimulus payments were first announced, we assumed they would act like other advanced tax credits and have a reconciliation on the 2020 tax return resulting in additional funds or repayments, based on the situation.

On April 22, the IRS published, “there is no provision in the law requiring repayment of an Economic Impact payment.”  Based on this information, it appeared that the reconciliation would not be required, but additional stimulus funds could still be claimed on the 2020 tax return if applicable.

However, on May 6, the IRS published a requirement to return a check/funds that had been received in three situations:

1) payment received by a taxpayer who died before receiving the payment,

2) a nonresident alien who received a payment, and

3) an incarcerated taxpayer who received a payment.

The IRS also published that a spouse who received a stimulus payment for $2,400 including any of the above situations, should return $1,200 for their spouse who does not qualify.

I will be very surprised if anyone returns a stimulus check to the IRS!  It is unclear whether or not there will be a reporting requirement on the 2020 tax returns to address these situations and trigger a repayment with the tax return.  Based on this significant change in guidance, it is also unclear whether or not any of this will change again.


PPP Loans – expense deductions

When the SBA loan programs were first released, the EIDL program specifically stated that any forgiven amounts would be taxable income, so we assumed that PPP forgiven amounts would be too.  Then the SBA and IRS published that the PPP forgiven amounts would not be taxable income.

Then on May 1, the IRS published that the expenses paid for with PPP forgiven funds would not be deductible (thus removing the tax benefit of the forgiven amount not being taxable).  The American Institute of CPAs and several members of congress (from both major parties) are fighting the IRS on this.

The AICPA is arguing that the purpose of the forgiven funds not being taxable was to create a tax benefit and therefore the expenses should be deductible.  The members of congress are preparing additional legislation to specifically write into the law that the expenses are still deductible (but this legislation is not yet passed).

As things stand right now, the PPP forgiven amounts are not taxable and the expenses covered with those funds are not deductible.  I think there is a reasonably good chance this will change before we are preparing and filing tax returns next year, but we will not know for sure until then.

In the meantime, if you have received a PPP loan, my recommendation remains the same – keep the funds separate and track everything meticulously (both for your loan forgiveness and for your accounting).  We will have to wait to see how the tax treatment shakes out.


If you did not get a PPP loan… Employee Retention Credit

If you did not receive a PPP loan, have a business that is closed or significantly reduced due to the Stay Home Order, and are paying employees, you may be a good candidate for the Employee Retention Credit.

You must meet the following criteria:

  • be closed fully or partially due to the Stay Home Order
  • have more than a 50% decrease in gross revenue compared to the same quarter last year
  • be paying employees (this does not apply to self-employed or PPP recipients)

If you meet these criteria, you are qualified for a tax credit of 50% of wages paid up to $10,000 in wages per employee (or $5,000 tax credit per employee).

This tax credit is claimed on the Form 941 (payroll tax return), starting in Quarter 2 (filed in July). The Form 941 is changing (getting longer & more complicated) to accommodate this credit (and others).  A draft is currently available, but the final form has not yet been released.

As we provide payroll services for many of our clients, we will be investing our team’s time into continuing education to learn the ins & outs of this new, more complex version of the Form 941. We will be screening our payroll clients for applying this credit so we are ready for quarterly filings in July.

Physical file drop off / pick up during COVID

[Updated 12/21/2020]

Our physical office remains closed during this pandemic and we are continuing to do as much of our business electronically as possible. Please continue to use the secure client portal on our website for document transfers.

If you would like to snail mail us your documents, our address is 1325 Lincoln St. Bellingham, WA, 98229

We also have a secure dropbox to the right of our front door where you can drop your documents off.

If you need to pick something up, please note the following:

  • Our office is still physically closed with limited availability
  • You will find our front door locked – please knock loudly
  • Please wear a mask. Our team member assisting you will wear a mask too.
  • Please stay outside the office – we will hand documents in/out at the door.

Thank you for continuing to use electronic solutions as much as possible and for following the instructions above to allow us to provide this physical document service and help keep us all safe in doing so.

More PPP Funding – We Recommend You Apply NOW

[Copy of email newsletter sent out 4/23]

You probably saw in the news that there is additional Covid-19 relief funding working it’s way through The Senate and The House this week.  It is expected to be signed into law Friday, April 24th.

Often tax bills get last minute changes before being signed into law, so I generally do not address new legislation until it’s full passed and signed.  However, this is a situation where time is of the essence.

Part of this legislation is adding new funding to the Paycheck Protection Program (PPP) loan program. In essence, the PPP program allows you to cover the cost of wages or net self-employment income for 2 months and have the loan forgiven.  (See our prior newsletters on this in more detail on our website.)

The PPP loans are funded on a first come first served basis and I expect this new round of funding will run out within a matter of days.  Although there is $310 Billion in funding slated for the PPP loan program, it’s still not enough for the current need.

If you need this coverage and have not yet applied, I recommend you contact your bank’s loan department today.  PPP loan applications are being prepared now, before the law is passed, to help get people first in line to get funded.

Many of our clients have successfully received funding in this program and many were just too late in line.  Now is the time to get your loan application started with your bank to be early enough in line for funding in this upcoming second round.

As a side note, for some self-employed individuals, the state unemployment program is a better option to the PPP loan. These are very different programs – the PPP loan covers wages being paid to keep folks employed and the unemployed pays benefits to folks who are not employed.  Self-employed individuals can apply for either one (but not both at the same time). Unfortunately, I cannot tell you which program is better for your specific situation, but I recommend you consider both. (Unemployment claim info is here:

Finally, given how dramatically underfunded the EIDL program is, I do not expect it to be re-opened to new applicants, but you can monitor it on the SBA website.

I hope this is useful in helping to prepare for this upcoming wave of relief funding,



B. Siobhan Q. Murphy
Thrive Business Group

Most Recent Relief Program Q&A and Corrections

[Newsletter sent to Thrive  clients 4/20/2020]


There are many updates on both state and federal relief programs – more than I can include in any newsletter.  Below I cover information that relates to the most common questions we are receiving and information that is new and/or different from what was previously released (and therefore is a correction to prior information provided).

If you are a current client and unable to find the answer you need using the resources below (& in prior newsletters), please email and we will do our best to answer your questions.

Thank you,



Unemployment claims for self-employed

Washington state has opened for unemployment claims for self-employed individuals under the Pandemic Unemployment Assistance (PUA) program. Unfortunately, we have no additional information beyond what is published on the ESD website. As a result, we are unable to answer detailed questions about if you qualify, how much you qualify for, when you will receive benefits, etc.

All information about the PUA program and the application process is available online here:


SBA Loan programs (EIDL / PPP)

The SBA has been so overwhelmed by applications to these programs that the SBA has shut down all new applications.  Although congress is in negotiations for additional funding & additional Covid-19 relief, as of writing this newsletter, no new laws have been passed.

PPP Loan:  If you have questions on this loan, please contact your business banking lender. They are in the best position to answer your detailed questions.

EIDL Loan / Grant: This program had $10 Billion in funding.  The SBA received over 4 million applicants requesting $400 Billion in funding. Only about 24,000 of those applications have been processed. This gives you an idea of the degree to which these relief programs are overwhelmed and underfunded. As a result, even if more funding is approved, I would be surprised if this program is re-opened for applications.

When this program was first released, it included a forgivable advance of $10,000 (acting like a grant). The SBA has now announced that this advance will be limited to $1,000 per employee up to $10,000 maximum.  They have not specified how this will apply to self-employed individuals or rental property owners.

My best guess is that self-employed individuals will count as 1 employee and receive $1,000 and that rental property owners will receive nothing. But that’s just a guess, the SBA will make their own determination of how to implement their decision.

Please note, if you were one of the first applicants to the EIDL program, your application number will start with a “2” and your application will not be processed and you must resubmit your application if the SBA re-opens their application system.

Here’s why: when the EIDL program was first released, it included a $10,000 forgivable advance for all applicants.  Then, the SBA was overwhelmed with applicants so they decided that they would only issue advances of $1,000 per employee up to $10,000.  However, their application form did not ask how many employees the applicant had.

They updated their system to ask for the number of employees and then started issuing application numbers with a “3” at the beginning.  All prior applications started with a “2” and will not be processed.  The SBA has indicated that these applicants will need to re-apply (if/when their system is reopened).

You can monitor the EIDL application system here:


Stimulus payments

The IRS has two tools available to assist you with stimulus payment issues, both located here:

If you want to check on your payment status, confirm if it’s direct deposit or check, or provide direct deposit info (in some cases), you can do so using the “get your payment” tool.

If you have not been required to file a tax return in the last two years, you can provide the IRS your info to receive your payment using the “non-filers” tool.

A few other updates recently published by the IRS:

In a previous newsletter, I explained that the stimulus payment is an advanced payment of a new tax credit on the 2020 tax return.  In the past, advanced payments of credits have been subject to a reconciliation – any extra received is repaid and any underpayments are added as a refund.

However, the IRS has now stated that they are treating this advanced credit payment differently. They will not require any repayment but they will allow claims of additional credit if applicable (for example if a child is born in 2020).

If the IRS has your bank account info on file from a previous direct deposit of a refund or for direct deposit of federal benefits (such as social security income), then they will use that bank account for your payment.  (This is the same as previously reported.)

However, if they have your bank account info from you making a direct debit payment for your tax return, they will not use that bank info.  Instead, they will mail a check, or you can use the “get your payment” tool to provide your bank info.


Estimated Tax Payments

The IRS updated the due date for the Quarter 2 estimated tax payment to 7/15/2020.  As a result, 2019 tax return payments, Quarter 1 and Quarter 2 estimated tax payments are all due on 7/15/2020.


SBDC resource website

The Small Business Development Center (SBDC) is keeping a great list of relief programs with ongoing updates.  I encourage you to monitor their resource page for additional programs and information:


Safe workplace guidelines

If your workplace is open as an essential business – or if you want to start preparing for re-opening as the Governor allows, L&I has issued the following information to assist you in ensure a safe workplace for you and your workers:


Confirmation of your tax filing

We file your tax return after receiving your signature on the e-file authorization form. After submitting your return, we get an acknowledgment back from the IRS that your return was received.  We make this acknowledgement available to you in your secure client portal – we upload it about a week after you sign for your e-filing.   The document name will be “IRS Efile ACK 2019 [client name]”.


Stimulus Checks and SBA Funds for Small Business CARES Act

[Updated 4/13/20]

The CARES Act is a massive new law – long, complex, and full of relief programs to help small business and self employed individuals.

I’m going to highlight the primary grant and loan programs for small business.  This is my personal summary of the programs based on my current understanding.  I am attempting to get you the critical information while keeping it as simple(ish). Please note that this information is accurate as of the morning of April 2nd, when I’m writing it.

Some of the details are subject to change.  Since the Act was signed into law on March 27th, we have received updates, changes, clarifications, and corrections daily. I expect to see more and will keep you informed of the major items that I expect to impact many of our clients.

Also note that the SBA is overwhelmed with applications and completely bogged down trying to handle the current need (and I think we’re just getting started).  Although they promise quick processing and fast funding, so far I am not seeing it happen.  I do encourage you to use the program(s) that make sense for you, but also to be patient with the process and funding.

I hope this helps navigate these huge and confusing relief options.  We will be providing multiple ways to get more detailed or personalize questions answered in the near future.  Please watch our email newsletter for follow-up Q&A info, group Q&A sessions, and individual consultation options.

Thank you,



CARES Act – Stimulus Check

This relief funding has gotten the most media attention.  Here are the basics:

If you file single or head of household, and your (adjusted gross) income is less than $75,000, you will receive $1,200 plus $500 more per dependent.  If your income is $75,000 – $99,000, you will receive a smaller stimulus check.  If your income is over $99,000 you will not receive a check.

If you file married/joint, and your (adjusted gross) income is less than $150,000, you will receive $2,400 plus $500 more per dependent.  If your income is $150,000 – $198,000, you will receive a smaller stimulus check.  If your income is over $198,000 you will not receive a check.

The payment you will received is based on the income you reported on your most recently filed tax return (2019 or 2018 if you have not yet filed 2019.  However, this is considered an advanced payment of a tax credit on your 2020 tax return.

That means that if you receive the payment and then your 2020 income is higher than the limits above, you will pay back the stimulus payment with your 2020 tax filing.  The reverse is also true – if you do not qualify now, but in 2020 your income is reduced below the limits above, the stimulus payment will be added as a tax credit to your 2020 tax return.

There is some political pressure to change this and make it so no one would have to repay the stimulus payment.  However, as the law is currently written, the possibility of repayment exists.

If you owe back taxes or are on a payment plan with the IRS, you are still eligible for this stimulus payment.

If you are not required to file a tax return because you have only Social Security Income, you do not need to file to receive the stimulus payment.

The IRS will directly deposit your stimulus payment if they have your bank info.  The way they get your bank info is if your 2018 or 2019 tax return reports it for the purpose of receiving a direct deposit refund or paying tax via direct debit.  They also have your bank info if you are receiving direct deposit federal government benefits (such as Social Security).

There is no special form to give your bank info to the IRS.  If we are filing your return for you, we can only include your bank info if you are receiving a direct deposit refund or making a direct debit payment. We have no way to provide the bank info to the IRS without attaching it to your tax refund or payment.


CARES Act – SBA Grant & EIDL Loan

This is my favorite program available for relief right now and can help so many people.

This applies to you if two conditions apply:

  1. you own a small business, are self-employed (including sole proprietors and contract workers), own a rental property, are a cooperative, or are a nonprofit and
  2. if you are under a stay home order (or similar), have a financial loss due to Covid-19, or expect you might have a financial loss due to Covid-19.

The SBA Grant provides $10,000 of immediate relief.  This $10,000 acts like a grant, not a loan, and does not need to be repaid.  It is taxable income, so you will pay tax on it on your 2020 tax return.

The SBA EIDL (Emergency Injury Disaster Loan) Loan program provides a 3.75% loan of up to $2 million to meet your financial obligations. The SBA will make the first 6 months of loan payments for you, the remainder is your responsibility to repay. The term is to be determined (up to 30 years) for each loan approved.

The SBA Grant & EIDL Loan are two programs, but they are joined at the hip – there is just one application to submit for both combined. For example, if you apply and indicate that you will have $30,000 in financial impact to cover, the SBA will issue a $10,000 grant followed by a $20,000 loan.

A few important notes:

  • When applying, you must check the box indicating that you want the grant to apply to the beginning of the loan. If you do not check this box, you will be applying for the loan only and will not receive the grant.
  • The SBA refers to the $10,000 grant as a “loan advance,” however it does not need to be repaid, so I am referring to is as a (taxable) grant.
  • There is no pre-payment penalty.
  • There is no personal guarantee or other qualifications; approval is based on credit score. Additional documentation may be requested in the loan review process.
  • If you use this program, you can still qualify for the PPP Program (described in part 2) or refinance this loan into the PPP Program.
  • The application is very short and easy – the SBA info says it takes an hour and 10 minutes to complete, but it took me 20 minutes.
  • The application is online, directly with the SBA (not through a bank) here:


I love this program – it’s quick and easy to apply, includes $10,000 of grant funds that do not need to be repaid, and applies widely. I can see it benefiting at least 80% of our clients.

I do not see any reason not to apply for this grant if you meet the two criteria.


CARES Act – PPP “Paycheck” Loan

The PPP (Paycheck Protection Program) Loan program is the source of a lot of questions. The purpose of this loan is to help maintain our workforce, so it is incentivized to promote use to cover wages. Here are the basics:

  • This program is available to small businesses with employees and to self-employed individuals. (Below talks about wages – for self-employed folks, it’s all based on a calculation of average income.)
  • The loan amount is based on wages paid – the maximum loan amount is 2.5 times your average monthly wage cost (including medical insurance, retirement benefits, and state payroll taxes).
  • You can use the funds for wage costs (including employee medical insurance and retirement benefits), rent, mortgage interest, and utilities
  • You will get the most benefit out of this program by using the funds primarily for wages (at least 75%) and secondarily for rent and utilities – because these uses are tied to the loan being forgiven (details below).
  • This is a loan, you will need to repay any parts that are not forgiven. Interest is 1% and the term is 2 years. (The law allows for up to 10 years, but the SBA has decided to only allow 2 years.) The first 6 months there is no payment, but interest does accrue.  (The SBA is not paying the first 6 months for you like the EIDL loan, the payments just begin 6 months after the loan is approved).
  • There is no pre-payment penalty, no personal guarantee, no collateral, but a good dose of paperwork. Paperwork requirements include providing W-2s, 941s, documentation of certain expense payments, etc.
  • You can apply for both the SBA Grant/EIDL loan and this PPP Loan. You also may refinance the EIDL Loan into the PPP Loan program.
  • The loan application is made through an SBA participating bank. Be sure to understand the details of the loan with your bank as they likely have changed (at least a little) since we sent this newsletter.
  • To get the maximum value out of the loan and the maximum possible loan forgiveness, apply for this loan as soon as possible. The funding may run out due to massive demand, and loans are on a “first come, first serviced basis.”

The loan forgiveness portion of this program is very important. Here’s how it works.  After your loan is approved, the following 8 weeks is critical – this is when your spending is monitored – in particular, how much you spend on wages.

If you spend the same or more for wages than you did last year (i.e. you are maintaining your workforce), then your loan is eligible for full forgiveness. If your wage cost has decreased, then only a portion of your loan is eligible for forgiveness.

Government funds are limited for the forgiveness portion of this program, so even if you are eligible for full forgiveness because you are maintaining your workforce, there are other limitations that may apply.  The SBA is expecting to forgive the loan funds that were used for wages in full, but limit the loan forgiveness for rent & utilities to 25% of the loan funds. In other words, if you spend at least 75% of the loan funds for wages and the other 25% or less on rent and utilities, then you are may have full loan forgiveness. If some of your loan is not forgiven, , you will be required to pay it back like any other loan.

You will need to apply for the loan forgiveness through the bank that issued the loan (after the 8 weeks has passed).  It doesn’t happen automatically.  The forgiven portion of the loan will be taxable income to you.    Initially it looked like the forgiven portion of the loan would be taxable income to you.  More recent guidance indicates that it will not be taxable income (though the EIDL grant still will be).



CARES Act – Additional Payroll Help

There are two additional options for payroll help, but I’m not a fan of either one, so I am not recommending them.  Here are the basics:

Payroll Retention Credit allows you to request a refund from the IRS on 50% of wages paid up to $10,000 per employee (so a refund to you of $5,000 per employee).  You qualify if you are under a “stay home” order (or similar) or have at least a 50% reduction in revenue.

You cannot use this program if you are using the PPP loan program (which I think is a better program with more benefits). You cannot use it for owner wages or if you are self-employed (which are covered by the PPP loan program).

I would only recommend this program as a back up plan if you cannot use the PPP loan program.

Payroll Delayed Deposit allows you to delay paying the employer’s share of social security tax (not any other payroll taxes). Half of the delayed tax is due by 12/31/20 and the other half by 12/31/21.

As attractive as it might be to delay paying some payroll tax, I am recommending against this program as the risk of not being able to pay later is too high.

If for any reason you cannot make that delayed payment, you can be subject to penalties, interest, and civil penalties.  The penalties on payroll taxes are brutal and I think it’s not worth the possible risk of not being able to pay on time.


CARES Act – Retirement Plans

IRA/HSA Contributions: We now have until 7/15/2020 to make contributions to IRAs, qualified retirement plans, and HSAs.  (This came with the tax deadline extension and we shared this in a previous newsletter, but it bears repeating.)

If you already filed your 2019 tax return and you want to make a contribution to an HSA, IRA, etc. – you can make the contribution before 7/15 and then amend your 2019 tax return to claim the associated deduction.

If you are making a contribution after 4/15 and before 7/15 make sure you keep documentation showing that you indicated it to be for 2019 and double check that it has been applied to your account correctly.

Early Retirement Distributions: If you are affected by Covid-19, you can pull funds from your retirement account without penalty.  Normally, early distributions are subject to income tax plus another 10% penalty on top.  For 2020, early distributions from retirement accounts are not subject to the 10% penalty.  There is a $100,000 maximum per person – after that the penalty kicks back in.

Retirement distributions are still subject to income tax, and here too there is a change.  You can choose to pay all of the tax in 2020 or you can choose to pay 1/3 in each of the years 2020, 2021, 2022.  This is true for Covid-19 related early distributions and regular distributions for folks over 59 ½ years.

If you distribute funds from a retirement plan, you usually have up to 60 days to put it back and have it treated as a rollover and not subject to tax or penalty.  With this special rule for 2020, you have up to 3 years to put the funds back into your plan and treat it as a non-taxable rollover.  (This might involve amending a return if you return the funds to your retirement account after filing your tax return.)

Retirement Plan RMD: There is no Required Minimum Distribution (RMD) requirement for 2020.  If you have already taken your RMD, it is now considered a regular distribution and the rules above apply – you can put it back and consider it a rollover or keep it and pay tax (this year or over the next 3 years).

Retirement Plan Loans: Normally you can borrow up to $50,000 from a qualified retirement plan and repay it over 5 years.  If you are affected by Covid-19, you can now borrow up to $100,000 (if the loan is taken before September 26, 2020) with the 5 year repayment beginning in 2021.  This is still also subject to a cap of the funds in your retirement plan.  (For example, if you have $25,000 in your plan, you can borrow up to $25,000, not the full $100,000).


CARES Act – Charitable Contributions

We have a new deduction for charitable contributions if you do not itemize your deductions.  In the past, you could only deduct charitable contributions if you itemized deductions.  With the new, higher standard deductions, fewer people are itemizing.  Now, up to $300 in charitable contributions will be deductible without itemizing. This is set up as a permanent tax law change affecting 2020 and future years.


There is more!  But the remaining tax changes affect very few businesses and individuals.  These are the primary aspects of the tax part of the new law that affect the majority of our clients.


B. Siobhan Q. Murphy


Tax Extensions & New Employer Rules

Tax rules, new programs, new tax laws, and relief packages are coming out & changing so fast, we cannot keep up with them all.  We are making an effort to keep you informed of the most urgent and common issues to affect our client group of small businesses and self-employed individuals.

Below are the basics on what’s changed for tax filings and the new Families First Coronavirus Response Act that applies to all employers.

B&O Tax Deadlines

The WA State Dept of Revenue (DOR) is offering extensions.

  • If you are a monthly filer, you must call to request an extension – 360-705-6705
  • If you are a quarterly filer, Quarter 1 is now due June 30, 2020 (no call required).
  • If you are an annual filer, your 2019 return is now due June 15, 2020 (no call required).

The City of Bellingham is offering automatic extensions – Quarter 1 and Quarter 2 B&O tax filings and payments are now due October 31st.

Federal Income Tax Deadlines

All tax returns that were due on 4/15/2020 and all tax payments that were due on 4/15/2020 are now due on 7/15/2020.  This means the following:

  • You do not need to file an extension, just file by 7/15/2020.
  • You can still file an extension in time to file to 10/15/2020 if you need more time. (This does not extend your time to pay your tax beyond 7/15/2020.)
  • The IRS will not calculate penalties & interest until 7/15/2020.
  • If you failed to make estimated tax payments for 2019, the underpayment penalty still applies.
  • Your Quarter 1 estimated tax payment that was due 4/15/2020 is now due 7/15/2020.
  • Your Quarter 2 estimated tax payment is still due 6/15/2020 (no extension)
  • You now have until 7/15/2020 to make IRA and qualified pension contributions that were due by 4/15/2020. (This is NEW clarification from the IRS this week.)
  • Payroll Taxes are still due on their normal due dates (even the March payroll 941 deposit normally scheduled for 4/15 – it is still due 4/15).

Attn Employers: “Families First Coronavirus Response Act”  (CRV Act)

  • ALL employers (regardless of the number of employees) are required to comply. (The Dept of Labor has said that a small business of fewer than 50 employees can elect to be exempt from this act, but they have not provided any information on how to do this.)
  • You are required to post notice of this act and the associated benefits for your employees.
  • This is a legal obligation for employers, if you have detailed questions about this new & complex law, please contact your attorney for clarification.
  • I strongly encourage you to keep excellent records – you as the employer are responsible for following these new rules and can be penalized for doing it incorrectly.
  • These employee benefits are effective for 4/1/2020 – 12/31/2020. It does not apply to dates before 4/1/2020.
  • These benefits are not available to employees if the business has closed, including under Governor Inslee’s “Stay Home” order.

CRV Act – 2 weeks sick leave:

Employees who are sick or mandated quarantined (by a medical professional or the state – this does not apply if the employee self-quarantines), are eligible for 2 weeks of federal sick leave pay for 100% of normal wages (up to $511 per day).

CRV Act – 12 weeks family medical leave:

Employees who are ill, caring for someone who is ill, or caring for children who are at home because of school closure are eligible for up to 12 weeks of federal family medical leave. The first two weeks are unpaid, the remaining 10 weeks are paid at 2/3 of normal wages (up to $200 per day).

CRV Act – payroll mechanics

Employers are required to issue the payroll to employees under these two provisions.  These wages are exempt from Social Security tax, but subject to all other payroll taxes.

Employers can then request a tax credit to offset the cost.  The tax credit is equal to the employee’s Net Pay + federal withholding + Medicare tax (employee & employer portions) + cost of medical insurance tax free benefit provided to employee

The form for requesting this reimbursement has not yet been issued, but we are expecting to have it soon (likely early April).  The tax credit will be taxable income to the employer.

CRV Act – self-employed individuals

These federal sick leave and family medical leave policies are extended to self-employed individuals through a tax credit. The amount involves a calculation of average daily earnings, then applying the same rules as above.  We are waiting for more detailed guidance on this provision.


There is additional new legislation that has just been passed that includes stimulus payments to some taxpayers.  This new law is over 800 pages long – we are digesting this information as quickly as we can and expect to send out a newsletter soon covering the basics and answer most of your questions.

We are also starting to see more details coming out on the SBA small business loan programs (that include loan forgiveness), the extended unemployment benefits available to unemployed workers (and self-employed & contract workers who normally do not have coverage), and the state small business grant programs.

If you are looking for immediate financial support for you or your small business, I encourage you to look into these programs in more detail.

I hope this information is useful as we navigate the rapid updates coming out.