Coronavirus Aid, Relief, and Economic Security (CARES) Act:

We realize there is an abundance of information available online regarding all of the federal relief programs that the government recently passed due to the coronavirus pandemic and we thought it would be best to provide a summary in hopes to simplify the information for clients and colleagues.

Economic Injury Disaster Loans (EIDL):

• Provide non-forgivable loans up $2M
• Interest Rates are:
  • 2.75% for non-profit organizations
  • 3.75% for small business
• Up to 30-year repayment term
• 1-year payment deferral
• No loan fees, guarantee fees, or prepayment fees
• Requires credit underwriting, collateral and personal guarantee
  • If the loan is $200,000 or less, a personal guarantee is not required
• You can apply for this loan even if you have an existing credit line.
• Within days of applying, you’ll receive a $10,000 emergency grant.
  • Grants are not required to be paid back if the funds are used for maintaining payroll, increased cost due to supply chain disruption, lease/commercial loan payments, or repaying debt obligations that cannot be met due to loss of revenue.
• Business had to be in existence prior to January 31, 2020

All businesses, including sole proprietors and independent contractors can apply for EIDLs.  The link to apply is www.SBA.gov/disaster.  Make sure you select “Economic Injury for Coronavirus”.

An EIDL loan can be received in addition to the Paycheck Protection Program (listed below), however the proceeds from both loans can’t be used for the same purpose.

Paycheck Protection Program (PPP):

• Potentially forgivable loans for the lesser of (a) $10 million or (b) 2.5 x average monthly payroll. The average monthly payroll cost is determined based on a one-year period before the loan is made.
• Interest rate is 1%
• 2-year repayment term
• 6-month payment deferral as interest accrues
• No loan fees, guarantee fees, or prepayment fees
• No standard underwriting, collateral, or personal guarantee
• Loans will be forgiven if:
  • Proceeds are used to cover payroll costs, mortgage interest on commercial loans, rent, utilities, and interest on debt obligations incurred prior to 2/15/2020 over the 8-week period after receiving the loan and employee and compensation levels are maintained.
  • At least 75% of the loan must be used for payroll costs in order to be considered for forgiveness.
  • Payroll costs are capped at $100,000 on an annualized basis for each employee.
  • If you’ve laid off employees between Feb 15, 2020 and April 26, 2020, you must restore your full-time employment and salary levels by June 30, 2020.
• If you do not meet all the criteria above, only a portion of your loan will be forgiven.
• The amount of the debt forgiven will NOT be considered gross income for federal tax purposes.

This loan is available for small businesses, sole proprietors, independent contractors, and non-profits with less than 500 employees.  There are common ownership rules so if you own multiple companies, all the companies are factored into the equation.  The only exception for the common ownership rule with 500 or more employees is for companies in the “72” NAICS code – Accommodation & Food Services.

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.  We suggest that you first consult with your local lender as to whether they are participating, or visit www.sba.gov for a list of SBA lenders.

In order to apply, you must fill out an application and provide the following information:

• Payroll costs, including benefits – health insurance and retirement contributions;
  • Best to request the year-end summary showing total compensation paid to each employee during 2019 from your payroll provider as well as information for the 1^st quarter of 2020.
• Interest on mortgage obligations, incurred before Feb 15, 2020;
• Rent expense under lease agreements enforced before Feb 15, 2020;
• Monthly utility costs for which services began before Feb 15, 2020.

You have until June 30, 2020 to apply. We suggest you apply as soon as possible due to the high demand. The first date that you can apply is April 3^rd (small businesses and sole proprietors) and April 10^th (independent contractors and self-employed individuals).  The processing of these loans may take several weeks, if not longer. Please be patient with your lenders.

Tax credits and deferrals:

• New Paid FMLA Leave:
  • Applies to small businesses with less than 500 employees and self-employed individuals.
  • Effective: April 1, 2020
  • Eligibility – if an employee is unable to work due to:
    • Caring for their children and the school/daycare provider is closed because of COVID-19
  • Paid: The first 10 days are unpaid, then $200/day max with an aggregate max of $10,000.
  • Tax credit: Employer receives a tax credit in the amount paid to any employees for this type of leave through employer social security taxes each quarter.
    • Suggest companies track payments to employees separately from normal payroll.
  • New Emergency Paid Sick Leave:
    • Applies to all employers, including self-employed individuals.
    • Effective: April 1, 2020
    • Eligibility – if an employee is unable to work due to:
      1. Government quarantine; recommended by healthcare professional to self-isolate; experiencing COVID-19 symptoms;
      2. Caring for someone that is experiencing the condition above; or caring for children due to school/daycare provider closure.
    • Paid:
      • (1) above, then $511/day max with an aggregate max of $5,110
      • (2) above, then $200/day max with an aggregate max of $2,000
    • Tax credit: Same as new paid FMLA leave tax credit.
  • Employee retention credit:
    • Employers can elect this credit each quarter until the end of 2020.
    • Credit is 50% of up to $10,000 of qualified wages per qualified employee.
    • Cannot claim this credit if you receive EIDL or PPP.
  • Employer payroll tax deferral:
    • Employers can defer their share of social security taxes through 2020.
      • Pay 50% by the end of 2021 and 50% by the end of 2022.
    • Cannot do this if you receive EIDL or PPP.
  • Expanded unemployment benefits:
    • CARES expanded the scope of eligibility to self-employed, gig workers, and workers laid off due to COVID-19.
    • Total benefit paid to the worker is 39 weeks.
    • Waived waiting period
    • Each state’s DOL is different so the government expansion above may not apply to you depending on the state that you live in.
  • Existing SBA loan payments can be deferred for up to 6 months with approval. Interest will continue to accrue during that time period.

Below is a list of other tax provisions that were passed, but we decided not to go into detail for this blog.  If they apply to you, feel free to reach out and we can discuss the changes with you.

• Modification of net operating loss rules
• Modification of Sec 461(l) excess business loss rules
• Modification of Sec 163(j) interest deduction limitation
• Expansion of qualified improvement property
• Refunds of AMT credits

As always please do not hesitate to contact us if you have any questions.

The Huntington Tax Team