ALERT: Small Businesses Need to Take Action
Coronavirus Aid, Relief and Economic Security (CARES) Act
This Act was signed into law yesterday and takes effect in 15 days. It has requirement and help for small businesses. What kind of help? Would $10,000 help? What if it was not a loan but a grant for making payroll (if you keep your employees employeed through June 30 and pay interest through June 30)?
There is $350 billion for 100% federally-guaranteed small business loans and loan forgiveness packed into the Act, and It all goes into to effect two weeks from today. Right now, www.SBA.gov doesn’t seem to have any details. But here’s a run down…
Paycheck Protection Program (PPP)
Small businesses, nonprofits and veteran’s organizations with under 500 employees are eligible. Self-employed individuals and independent contractors are also eligible.
The maximum loan amount is $10 million through December 31, 2020, with the size of the loan tied to the average monthly payroll for 2.5 months. Loans can be used to cover payroll, benefits, mortgage, rent and utilities. Retroactive start date — February 15, 2020 — incentivizes companies to rehire staff that have been laid off.
Businesses with more than one physical location that employ no more than 500 employees per physical location in certain specified industries are eligible. Franchisees are eligible (food service at least).
Businesses are eligible for loan forgiveness equal to the amount spent during an 8-week period after the origination date of the loan on payroll costs, most interest payments on mortgages, rent or utility bills. Amounts forgiven may not exceed the principal amount of the loan and eligible payroll costs do not include compensation above $100,000 in wages. Forgiveness on a covered loan is equal to the sum of payroll costs incurred during the covered 8-week period compared to the previous year or time period.
Economic Injury Disaster Loans
(Emergency declaration must be made for a designated area before loans become available. These are already in place and can be found at SBA.gov.)
Tax Credits and Incentives
Refundable credits and adjustments are available for employers affected by COVID-19. Deferral allows companies to defer payment on their 2020 Social Security payroll taxes to future years with no penalty. Half will be due at the end of 2021, and the remaining half in 2022.
Employee Retention Tax Credit
Employers who have been hit with at least a 50% loss in gross receipts compared to the same quarter last year are eligible. Allows companies that maintain their payroll to receive a 50% credit on wages of up to $10,000 per employee. Companies with 100 or fewer employees could obtain a 50% credit on all wages paid. This is a refundable tax credit.
Tax Credit for Emergency Paid Sick & Family Leave
Employers reimbursed through a refundable tax credit that counts against employers’ payroll tax. Submit emergency paid sick and family leave expenses as part of their estimated quarterly tax payments. If employer’s costs more than offset their tax liability, they will get a refund from the IRS.
Modifications for Net Operating Losses
This relaxes limitations on use of losses for tax purposes. Allows for net operating losses arising in a tax year beginning in 2018, 2019 or 2020 to be carried back five years.
New Mandatory Sick Leave and Emergency Family Leave Requirements
Through December 31, 2020, employers have to pay for sick leave and family leave, although employers with less than 50 employees might be exempted.
New Emergency Paid Sick Leave Requirements
Employers with fewer than 500 employees must provide 2 weeks of emergency paid sick leave for employees. Full-time employees must be compensated for 80 hours. Part-time employees must be compensated for their typical number of hours worked. What’s covered? Complying with quarantine related to CoVID 19 (100% of pay). Diagnosis or preventive care for CoVID 19 (100% of pay). Care for sick family member (two-thirds pay)
Care for child whose school is closed (two-thirds pay).
Who Pays for the Emergency Leave?
Employers initially front the cost of emergency leave, but will be fully reimbursed by the federal government within three months. Reimbursement covers both the wages paid and the employer’s contribution to employee health insurance premiums during the period of leave. Employers are reimbursed by a refundable tax credit that counts against employers’ payroll tax. Employers submit emergency paid sick leave expenses as part of their estimated quarterly tax payments. If employer’s costs more than offset their tax liability, the employer gets a refund from the IRS. New Emergency Paid Family Leave Requirements*
Employers with fewer than 500 employees must provide 12 weeks of (unpaid in part) job-protected leave for employees who have been on the job for at least 30 days.
The Department of Labor may issue exemptions for employers with less than 50 employees. This is TBD.
The first 10 work days (2 weeks) are unpaid. Then, 10 weeks of paid leave (up to $10.000?). Eligible employees may elect or may be required to overlap the initial two weeks of unpaid leave with two weeks of other paid leave they have available. Employers will pay no less than two-thirds of an employee’s usual pay. Family leave assistance is capped at $10,000 per employee.
Care for child in the event of a school closure or their childcare provider is unavailable due to COVID-19.
Who Pays for the Emergency Paid Family Leave?
Employers initially front the cost of emergency paid sick leave but will be fully reimbursed by the federal government within three months.
Reimbursement covers both wages paid and employer’s contribution to employee health insurance premiums during the period of leave.
Employers reimbursed through a refundable tax credit that counts against employers’ payroll tax, which all employers pay regardless of non-profit/for-profit status. Employers submit emergency paid family leave expenses as part of their estimated quarterly tax payments. If employer’s costs are more than offset by their tax liability, the employer gets a refund from the IRS.