On Friday, March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief And Economic Security Act (CARES) Act. The legislation expands Small Business Administration Disaster Relief Loans, creates a new SBA loan, and provides for other types of loans related to relief from the virus and establishes various tax credits for employers affected by the virus.
Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily expands eligibility for SBA economic injury disaster loans (EIDL) and provides an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within 3 days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent, and mortgage payments.
Eligibility
In addition to the entities that are already eligible for SBA disaster loans (small businesses, private non-profits, and small agriculture cooperatives), eligibility is temporarily expanded to include:
- Business entities with 500 or fewer employees:
- Sole proprietorships, with or without employees
- Independent contractors
- Cooperatives and employee owned businesses
- Tribal small businesses
- Private non-profits of any size.
Additionally, you must have been in business as of January 31, 2020. Expanded eligibility criteria and the emergency grants are only available between January 31, 2020 and December 31, 2020.
How to Apply
- You can apply for an EIDLonline with the SBA.
- When you apply, you can request an emergency grant of $10,000.
- The SBA will provide the grant within 3 days of receiving your application.
- You will not have to repay the grant, even if your application for a loan is denied.
If you apply for an EIDL and the grant, you can still apply for a Paycheck Protection loan. However the amount forgiven under a Paycheck Protection loan will be decreased by the $10,000 grant.
Paycheck Protection Program.
Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates a new Small Business Administration (SBA) loan program, called the “Paycheck Protection Program” (PPP). The Paycheck Protection Program provides small businesses with zero-fee loans of up to $10 million to cover payroll and other operating expenses. Up to 8 weeks of payroll, mortgage interest, rent, and utility costs can be forgiven. Payments on principal and interest are deferred for six months and up to one year. Small businesses will be able to apply if they were harmed by COVID-19 between February 15, 2020, and June 30, 2020. This program is retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
Eligibility
You are eligible if:
- Your business or entity was in operation on February 15, 2020;
- You are a small business, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or tribal business concern that has fewer than 500 employees.
- You are a sole proprietorship, an independent contractor, or self-employed.
- You are a franchise business that employs not more than 500 employees per physical location and your business has an NAICS code beginning with 72, for which the affiliation rules are waived. Affiliation rules are also waived for any business operating as a franchise that is assigned a franchise identifier code by the SBA, and any company that receives funding through a Small Business Investment Company.
Loan Size:
- Your maximum loan size is 250% (2 1/2X) of average monthly payroll costs for the one-year period before the loan is made. If you are a seasonal worker, it is 250% of average monthly payroll costs from February 15, 2019, to June 30, 2019, or you can opt to choose March 1, 2019, as the time period start date.
- If you were not in business this time last year, your maximum loan is equal to 250% of your average monthly payroll costs between January 1, 2020, and February 29, 2020.
- The loan maximum in all cases is $10 million.
Payroll costs for the purposes of determining your loan size include:
- Compensation (salary, wage, commission, or similar compensation, payment of cash tip)
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment required for group health care benefits, including insurance premiums
- Payment of any retirement benefit
- Payment of State or local tax assessed on the compensation of employees
The following costs do not count towards your loan size: compensation over $100,000, certain withheld taxes, compensation for employees outside of the United States, and required leave under the Families First Coronavirus Response Act, for which a credit is allowed.
Use of Loan Funds:
You may use the funds for:
- Payroll costs (all costs included above)
- Costs related to group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
- Employee salaries, commissions, or similar compensations (except as excluded above)
- Payments of interest on any mortgage (but not payment or prepayment of principal)
- Rent
- Utilities
- Interest on any other debt obligations that were incurred before the February 15, 2020.
Loan Terms:
For any amounts not forgiven, the maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).
Loan Forgiveness:
You can apply to your lender to forgive your loan for the amount of payroll costs plus payments of mortgage interest, rent, and utilities incurred during the 8-week period after the loan is disbursed. The amount that can be forgiven is proportionate to maintaining employees and wages. You must apply through your lender for forgiveness and provide:
Documentation verifying the number of employees on payroll, their pay rate, IRS payroll and state income tax filings, and unemployment insurance filings;
Documentation verifying payments of rent, mortgage interest, utilities, and other debt and
Certification from your business that the documentation provided is true and that amount of the loan that is being forgiven was used in line with the program’s requirements.
Any loan amounts not forgiven are carried forward as an ongoing loan with maximum terms of 10 years, at a maximum interest rate of 4 percent. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan.
You may apply for a paycheck protection loan and other SBA loans, including the SBA economic injury disaster loans, 7(a) loans, 503 loans, and microloans. However, you may not use funds from each of these programs for the same purposes.
It is important to note that the number of employees must remain the same for the period from February 15, 2020 through June 30, 2020 as they were for the same period in 2019 or from January 1, 2020 through February 15, 2020. Additionally, salaries cannot be reduced by more than 25%.
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Employee Retention Tax Credit
Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act creates a refundable payroll tax credit for businesses (large and small) and non-profits that retain their employees during the COVID-19 crisis. The tax credit is equal to 50% of wages and compensation. There is an overall limit on wages per employee of $10,000. The credit is provided through December 31, 2020.
Eligibility
Employers are eligible if they have been fully or partially suspended as a result of a government order, or if they experience a 50 percent reduction in quarterly receipts as a result of the crisis.
Amount of Tax Credit
- For employers with 100 or fewer full-time employees, they may claim a credit for wages paid to all of their employees, up to $10,000 a person.
- For employers with more than 100 employees, they may claim a credit for those employees who are furloughed or face reduced hours as a result of the employer’s closure or economic hardship.
Applying the Tax Credit
The credit can be claimed against the business or non-profit’s quarterly payroll tax liability and is fully refundable to the extent of excess. The Department of the Treasury is authorized to make advance payments of the tax credit, and to waive penalties for employers who do not deposit applicable payroll taxes in anticipation of receiving the credit.
Limitations
This tax credit is not available if the employer takes an SBA paycheck protection loan.
Overview
The Coronavirus Aid, Relief, and Economic Security (CARES) Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.
Eligibility
Employers, both businesses and non-profits, are eligible to defer their payroll taxes, unless they receive a loan under the SBA Paycheck Protection Program
Deadlines
- Employers may defer payroll taxes through the end of 2020;
- The first 50 percent of the deferred amount must be paid before December 31, 2021;
- The second 50 percent of the deferred amount must be paid before December 31, 2022.
The foregoing is a relatively simple analysis of what is a fairly complex piece of legislation.
Neither the banks nor the SBA have procedures in place, at this time, to process the loans; however, the SBA is accepting applications under the EIDL program and will hopefully start processing the $10,000 Emergency Advance Payment soon.
