CARES Act Summary of Financial Relief for Businesses

Payroll Tax Credits & Deferment

  • FFCRA Paid Leave – A quarterly tax credit on your 6.2% Social Security payroll tax is available for 100% of Paid Sick Leave and Paid Childcare Leave payments under FFCRA and it is refundable.
  • CARES Act Payroll Tax Credits – In addition, eligible employers can claim a quarterly payroll tax credit for 50% of qualifying wages paid through December 31, 2020; up to $10,000 per employee.
    • Eligible Employers- available for any calendar quarter if you experience:
      • Closure – Business is fully or partially closed due to a COVID-19 Gov’t Closure Order; OR
      • Sales Decline – Total receipts decrease by 50% or more (compared to same quarter in 2019).
    • Qualifying Wages – depends on average number of employees in 2019:
      • Over 100 employees – count the wages paid to employees who did not work (layoff) during the quarter.
      • 100 or fewer employees – count wages paid to all employees during a Closure & all wages paid during a quarter that had a Sales Decline.
    • Tax Deferment – Businesses (even self-employed) may delay paying social security payroll taxes until January 1, 2021 and pay the balance over 2 years (50% on 12/31/2021 and 50% on 12/31/2022).

Loan Programs

  • SBA Small Business Loans: Paycheck Protection Plan – If fewer than 500 employees can apply for SBA loan to cover operating expenses. Banks will process the loans. SBA must issue regulations/guidance within 30 days.
    • Loan Amount – up to 2.5 times average monthly Payroll Costs (based on last 12 months), up to $10M.
      • Payroll Costs = salaries, wages, commissions, paid time off, benefits, state & local payroll taxes; do not count paid leave under FFCRA.
    • Loan can be used for wages, paid sick or family leave, group health plan costs, salaries (up to $100,000 annual equivalent), mortgage interest payments, rent, utilities and interest on other debt.
    • Portions of loan may be forgiven upon application for certain expenses paid during the 8 weeks following the loan date:
      • Mortgage interest, rent and utilities; Payroll and payments on debt are forgiven if you retain employees and payroll levels (as of February 15, 2020) until June 30, 2020.
      • Loan forgiveness is reduced in proportion to the number of employees laid off or impacted by salary reductions (over 25%) during the 8 weeks following the loan date
    • Any remaining loan balance is repaid over 2 years with interest rate of 1% (may change); no collateral.
    • All SBA 7(a) loan payments are deferred for 6 months.
  • SBA Emergency EIDL Grants – New fund for Emergency Advances on Economic Injury Disaster Loans (EIDL) from SBA. The Advances are first-come, first-served until the $10B fund is gone. Loans are capped at $2M.
    • Eligible Employers have fewer than 500 employees and must be unable to pay normal operating expenses due to COVID-19. Applicant must sign certification of eligibility.
    • Emergency Advance up to $10,000 may be available within 3 days of loan application; Advance must be used for payroll, sick leave, and/or obligations like debt, rent and mortgages.
    • The Advance does not need to be repaid, even if the employer’s EIDL loan application is denied.
    • The advanced amount reduces the amount that can be forgiven under the Paycheck Protection Plan.
  • Economic Stabilization Loans– The CARES Act establishes direct lending programs for small/medium sized businesses. Must be U.S. businesses with significant operations and majority of employees located in the U.S.
    • Borrowers must agree to conditions that apply during the loan and for 1 year after:
      • Cannot buy back publicly-traded stock of company or affiliates;
      • Cannot pay dividends or make capital distributions.
    • Mid-size Companies: Loans to mid-size companies (500 to 10,000 employees) carry a max. APR of 2%, and no principal or interest payments for the first 6 months. The borrower must certify:
      • Uncertainty of economic conditions makes the loan necessary to support ongoing operations of the business;
      • The funds will be used to retain at least 90% of the borrower’s workforce, at full compensation and benefits, until September 30, 2020;
      • Business will restore at least 90% of the workforce (as of February 1, 2020) and restore all compensation to all employees within 4 months after public emergency declaration ends;
      • Business has not filed for bankruptcy;
      • Business will not outsource jobs during the loan and for 2 years after repayment; and
      • Business may not revoke existing collective bargaining agreements during loan and for 2 years after and will remain neutral in any union-organizing effort during loan.

Tax Rules that May Benefit Employers

  • CARES Act Amendments – Temporary changes for tax treatment of certain expenses.
    • Net Operating Losses – You may take net operating losses earned the past three years (2018, 2019, and 2020) and carry back those losses five taxable years.
    • Interest Deduction Limit Increased – Temporarily increases the amount of deductible interest expense; limit increases from 30% to 50% of taxable income for 2019 and 2020.
    • Qualified Improvement Property Deduction – Immediately write off costs for improving facilities.
  • Existing Tax Rule – Employer Qualified Disaster Payments – Because COVID-19 was declared a national emergency, employers may make tax-free payments to employees as qualified disaster payments, pursuant to Section 139 of the Internal Revenue Code (Code), and the payments are fully deductible by the employer.
    • Qualified disaster payments reimburse employees for necessary personal, family, living or funeral expenses incurred as a result of a disaster and not reimbursed by insurance.
    • For COVID-19, qualified expenses include cleaning supplies, childcare during school closings, work from home expenses, OTC medications and other unreimbursed health-related expenses.

The employment practices team at Harpst Becker can answer your questions about COVID-19 and other employment concerns. 

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