The President has signed into law the $2 trillion stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act (or the “CARES Act.”) The Act will provide assistance to individuals, families and businesses negatively affected by the Coronavirus pandemic.
Below is a summary of the provisions that impact small businesses.
Employee Retention Payroll Tax Credit
Employers who are at risk for closure due to COVID-19 can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for an employer whose operations were fully or partially suspended due to a COVID-19 related shut-down order from an appropriate governmental authority, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year.
The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee.
This credit is also available to nonprofit organizations.
Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit.
Delay of Employment Tax Payments
The Act allows employers and self-employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020. Fifty percent of the deferred tax payments will be due by December 31, 2021 and the remaining portion due by December 31, 2022. Businesses who have debt forgiven from Payroll Protection Program loans are not allowed to delay their payments.
Net Operating Loss/Excess Business Loss Changes
The Tax Cuts and Jobs Act limited net operating loss deductions. The CARES act has amended those provisions to allow net operating losses incurred in 2018, 2019, and 2020 to be fully deductible, without the 80% limitation. The net operating losses from 2018, 2019, and 2020 are also allowed to now be carried back 5 years to allow businesses to claim refunds of taxes paid in prior years.
Owners of pass-through entities are no longer subject to excess business loss provisions for 2018, 2019, and 2020. They will be able to take full advantage of pass-through losses, as available.
Business Interest Deduction
The Tax Cuts and Jobs Act had limited the deductibility of business interest to 30% of taxable income. The allowable deduction under the CARES act has been increased to 50%.
Qualified Improvement Property
Businesses will be able to write off all of the costs of certain interior renovations as 15 year property and eligible for expensing in nonresidential real property instead of using straight-line depreciation over a 39 year period.
Paycheck Protection Program
The Paycheck Protection Program (PPP) will provide nearly $350 billion in loans and loan guarantees for the covered period of February 15, 2020 through June 30, 2020.
- PPP will cover payroll costs (up to annual amounts of $100,000 per employee); continuation of group health care benefits; employee salaries, commissions, or similar compensation; mortgage payments; rent; utilities; and interest on any other debt obligations incurred before the covered period.
- PPP will extend eligibility to companies of 500 employees or less and 501(c)(3) nonprofits, veterans organizations, and tribal small business concerns.
- Sole-proprietors, independent contractors, and other self-employed individuals may also participate.
- Loan Forgiveness is available up to the principal amount of the financing.
- Loan forgiveness would be reduced for employers who lay-off workers or reduce employee compensation except where employers rehire workers or pay additional wages to tipped workers.
- Loan forgiveness is available for payroll costs, mortgage interest, rent, and utility payments.
- Forgiven loan amounts will not be included as gross income.
- The general formula is the lesser of the average total monthly payments for payroll costs during the 1-year period before the date the loan is made, multiplied by 2.5; or $10 million.
- Qualified SBA lenders will be able to loan money directly to eligible customers.
- There will be limited funding.
- Now is the time to call your qualified SBA lender and begin the process of gathering financial and tax records.