By Greg Smith, CFP®, CLU®, ChFC®, CRPS®
Client Advisor and Compliance Specialist
Several bills have recently been introduced in order to help families and businesses affected by COVID-19. There are many provisions aimed at assisting small businesses which are explained in this article.
The Families First Coronavirus Response Act (FFCRA), H.R. 6201, was signed into law on March 18, 2020. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, H.R. 748, contains a host of tax measures as part of a $2 trillion aid package designed to help the economy as it suffers from the effects of the coronavirus pandemic. The bill was signed into law on March 27, 2020. There are many provisions aimed at assisting small businesses which are explained below.
Employer Paid Leave Requirements
The Families First Coronavirus Response Act (FFCRA) requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. Covered employers must provide employees: (1) two weeks (up to 80 hours) of paid sick leave at 100% of regular pay where the employee is unable to work due to COVID -19, or (2) two weeks (up to 80 hours) at 2/3 of regular pay for employees that cannot work due to caring for an individual that has been quarantined or caring for a dependent child whose school has been closed because of COVID-19.
For employees that have been employed for at least 30 days, a covered employer must provide up to an additional 10 weeks of paid expanded family and medical leave at 2/3 the employees regular pay rate where the employee is unable to work in order to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
Covered employers include certain public employers and private employers with fewer than 500 employees (excluding most employees of the Federal government who are already covered under other laws). Small businesses with fewer than 50 employees are eligible for an exemption from the mandatory paid leave for child care due to school closings or childcare unavailability. To mitigate the stress placed on small businesses during the pandemic, the new requirements are subject to a 30-day non-enforcement period from the Department of Labor, if employers make a good faith effort in trying to comply. The IRS has set the relief parameters in IR-2020-57.
Payroll Tax Credit Refunds
The CARES Act provides for quick refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms provided by the IRS. The IRS has been instructed to waive penalties for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit. This provision will reimburse employers, dollar-for-dollar, for the cost of providing coronavirus-related leave to their employees. Employers will be able to claim refund credits for qualifying leave provided between April 1, 2020, and December 31, 2020.
Equivalent credits are available to self-employed individuals based on similar circumstances. Such individuals will claim the credits on their income tax return and will reduce quarterly estimated tax payments.
To take immediate advantage of the paid leave credits and ease employers’ cash flow, the IRS says eligible employers who pay qualifying sick leave or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than depositing the payroll taxes with the IRS.
Employee Retention Credit
The CARES Act creates an employee retention credit for employers that close due to the coronavirus pandemic. Eligible employers are given a credit against employment taxes equal to 50% of qualified wages (up to $10,000 in wages) for each employee. Eligible employers include: (1) those who carried on a trade or business during 2020 and whose operations were suspended due to a governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak, or (2) employers that have gross receipts that are less than 50% of the gross receipts from the same quarter of the prior year. For employers with 100 or fewer employees, all wages paid qualify for the credit. Employers with more than 100 employees, only wages paid for employees that are not providing services due to the suspension of business are decline in gross receipts are eligible.
Payroll Tax Delay
The CARES Act postpones payment of 50% of 2020 employer payroll taxes until December 31, 2021; the other 50% will be due December 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
Paycheck Protection Program (PPP) Loans
The program will provide cash flow assistance through 100% federally guaranteed loans (up to maximum of $10M) to employers who maintain their payroll through this emergency. If employers maintain their payrolls, the loans would be forgiven for up to 8 weeks of payroll. Loans are available through June 30, 2020. Eligible employers include those with fewer than 500 employees, sole proprietors, 501(c)(3) non-profits, and independent contractors. For loan amounts not forgiven, the maximum loan term is 10 years and interest rate not to exceed 4%. More information can be found on the SBA website.
Small Business Debt Relief Program
This program will provide immediate relief with non-disaster SBA loans (including 7a, 504, and micro loans). In general, businesses must meet size standards. For more information, refer to this link. The SBA will cover all loan payments, including principal, interest, and fees for 6 months. This relief will also be available to new borrowers who take out loans within 6 months of the President signing the bill into law. For more details click here.
Economic Injury Disaster Loans and Emergency Economic Injury Grants
These grants provide an emergency advance of up to $10,000 to small businesses harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). The advance does NOT need to be repaid and can be used to keep employees on the payroll, pay sick leave, etc. An EIDL loan is up to $2M, with principal and interest deferral at the administrator’s discretion. Eligible businesses are those with fewer than 500 employees, including sole proprietorships, independent contractors, and private non-profits. You can apply by clicking here. Your local district office of the SBA is also a helpful resource.
For more information on the various loan programs available, we recommend checking out the U.S. Senate Committee on Small Business & Entrepreneurship publication entitled, “The Small Business Owners Guide to CARES Act.” This can be found by clicking here, or consulting with your district office of the Small Business Administration (SBA). For payroll tax credit refunds and payroll tax postponement, we recommend consulting with your tax advisor for further guidance.
Journal of Accountancy – 3/27/2020
“The Small Business Owners’ Guide to CARES Act” published by U.S. Senate Committee on Small Business & Entrepreneurship.