Although the stimulus payments to individuals have stolen the headlines, small businesses also stand to gain a great deal of support from the CARES Act during this challenging time. If your business has been adversely impacted by the coronavirus, chances are at least one of the items below will help support you through the crisis.
Forgivable loans to help you maintain payroll
One of the goals of the CARES Act is to help prevent job losses wherever possible. Businesses that have been adversely affected by COVID-19 between February 15 and June 30, 2020, can qualify for Paycheck Protection Program (PPP) Loans. These loans are intended to help cover payroll costs and are forgivable if the employees are retained for the duration of the crisis. Even if your business has already laid off workers due to the crisis, you can qualify for PPP loans by bringing them back onto your payroll. Many types of business entities can qualify, provided they have fewer than 500 employees per location. Non-profits, sole proprietorships, independent contractors, and self-employed individuals are also eligible.
The size of the loan will depend upon a variety of factors, including your monthly payroll costs during the same period in 2019. If you have already taken out an Economic Injury Disaster Loan (EIDL), it can be refinanced as a PPP loan. The maximum loan size is $10 million per entity. Act fast—these loans are available through June 30, 2020.
Portions of these loans can be forgiven, but there are limits. The amounts for eligible payroll costs, mortgage interest, rent, and utilities may be eligible for forgiveness. You must maintain payroll; only loans, leases and utility services that were pre-existing on February 15, 2020, are eligible. For example, if you lease a new location on February 16, 2020, those costs would not be forgivable. Reductions in headcount and salary prior to securing a PPP loan can be corrected by bringing back those employees (even furloughed), but reductions of more than 25% will reduce the amount of loan that is forgivable.
UPDATE: The SBA has clarified that 1099 contractor costs are not counted toward your payroll calculations because those contractors have the ability to apply for a PPP loan on their own.
More payroll protection through tax credits and delayed payroll taxes
If your business or non-profit organization has had its operations fully or partially interrupted due to COVID-19, you may be eligible for a refundable payroll tax credit covering 50% of wages paid to employees who have been furloughed or had their hours cut. If the business has fewer than 100 employees, all employee wages are eligible, even if the employee continues to work. This credit covers wages and compensation (including health benefits) and maxes out at $10,000 per eligible employee. Sick and FMLA leave wages are not included. If you receive a loan through the Paycheck Protection Program detailed above, your business will not be eligible for this credit.
Beyond the credits, certain payroll tax payments can be deferred through the end of 2020 in order to help ease cashflow. Half of the deferred tax amount will be due at the end of 2021, and the other half at the end of 2022. The amount eligible to be deferred is only the employer portion of Social Security. Employers who utilize the Payroll Protection Program may not defer their payroll taxes.
Disaster loans and grants
Businesses and private non-profit organizations can receive an emergency advance of up to $10,000 within three days of applying for a disaster loan. The advance will not need to be repaid and is intended to provide cash flow relief to cover payroll, sick leave, meet increased production costs, or other business expenses (such as debts, rents, and mortgages).
Economic Injury Disaster Loans (EIDLs) are lower interest rate loans to cover expenses that would otherwise have been met by the business absent the disaster. Business entities with 500 or fewer employees, including sole proprietorships and independent contractors, can borrow up to $2 million at a low interest rate. You must first apply for the EIDL in order to receive the $10,000 emergency grant funds.
The $10,000 must be used for payroll, mortgage and lease payments, debts that can’t be repaid due to revenue loss, and increased costs due to supply chain disruption.
Debt relief for small businesses
Businesses that currently hold loans through the SBA can qualify for debt relief, during which the SBA will cover loan payments (principal, interest, and fees) for six months. Loans eligible for debt relief include 504 loans, 7(a) loans (except those made under the Paycheck Protection Program), and microloans. Existing disaster loans are also not eligible for the small business debt relief program.
Other tax provisions for small business relief
While the items outlined above are the best sources for immediate relief, the CARES Act also includes other tax provisions that will become relevant when you file your 2020 tax return. Net operating losses from 2018, 2019, and 2020 will be able to be carried back 5 years, meaning that you can go back even further than usual in claiming losses against past gains. An employee retention credit of up to $5,000 will be available against wages paid while the business is unable to operate or if gross receipts drop by 50%. Other tax relief is available depending on the structure of your organization and relates to alternative minimum tax liability, net interest deductions, and qualified improvement property. Aviation excise taxes, as well as excise taxes for alcohol used to produce hand sanitizer, are suspended for 2020. Specific industries that are particularly hard-hit (such as airlines) will receive specially designated funding.
If you’re a brick-and-mortar business, you may benefit from Congress’ fixing of the retail glitch. This remedy allows businesses that made improvements to the interiors of commercial buildings to take 100% bonus depreciation. If you made improvements in 2018 or 2019, you may be able to receive a tax refund.
These are the provisions of the CARES Act that are most relevant to small businesses; don’t forget that the Families First Coronavirus Response Act also created a variety of resources intended to help small businesses and support employees.
Are you looking for more details? The U.S. Senate Committee on Small Business and Entrepreneurship has created a helpful guide to the CARES Act provisions that impact small business owners. The guide includes links to the various loan and grant programs summarized above. We are available to help small businesses create a roadmap that fits the needs of your individual business, including which loans and relief programs are most appropriate. Please contact us to schedule a consultation.