Coronavirus Tax Updates - Businesses
Updated: Mar 30, 2020
The CARES Act was passed by Congress and signed by President Trump on March 27. The bill provides relief to several groups impacted by the coronavirus pandemic.
SBA Economic Injury Disaster Loans:
The U.S. Small Business Administration is offering low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus Pandemic.
Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
In addition to small businesses, sole-proprietors, independent contractors, and other self-employed individuals are eligible for these loans.
Businesses who have applied for an Economic Injury Disaster Loan may request an advance of up to $10,000 (which does not have to be repaid, even if the loan application is later denied) to provide covered leave, maintain payroll, and pay debt obligations. Advances are to be made by the lender within three days of an application for such advance.
Non-profits and churches designated as 501(c)(3) organizations may also participate in the PPL program, while 501(c)(6) organizations are not eligible.
These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact.
The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years.
Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
Paycheck Protection Program:
Congress allocated $350 billion for the Paycheck Protection Program, which is meant to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30.
The SBA will ask you to provide documentation on your business’s payroll, mortgage, rent, and utility payments over the previous 12-month period. They will calculate the monthly average cost of those expenses. The maximum amount they can offer is 2.5 times that monthly average cost, but no more than $10 million.
If you are a seasonal employer, the monthly average cost will be calculated differently. The SBA will use a 12-week period beginning either February 15, 2019 or March 1, 2019, and ending June 30, 2019.
Loans may be forgiven if a firm uses the loan for payroll, interest payments on mortgages, rent, and utilities and would be reduced proportionally by any reduction in employees retained compared to the prior year and a 25 percent or greater reduction in employee compensation.
The loan forgiveness will not be includable in your taxable income
Favorable term of up to 10 years at 4% interest
No collateral and no personal guarantee required
Note that if you receive a loan under the Paycheck Protection Program, you may no longer be eligible for an EIDL SBA loan for the same purpose of covering payroll
Employer Payroll Taxes:
Employers can defer the 6.2% Social Security tax due for rest of year until end of 2021, 2022.
The CARES Act will allow employers (and self-employed individuals) to defer paying their portion of the social security payroll tax (6.2 percent) otherwise due through December 31, 2020.
The amounts will ultimately have to be paid over to Treasury in two installments.
Half of the deferred amount of payroll taxes from 2020 will be due December 31, 2021
The remaining half will be due December 31, 2022
Employers who received Small Business Act loans that were forgiven under the CARES Act are not eligible for this payroll tax deferral.
Employee Retention Payroll Tax Credit:
Certain employers may receive a payroll tax credit of as much as $5,000 per employee for wages (and health benefits) paid after March 12, 2020, and before January 1, 2021.
If the credit amount exceeds the employer’s liability, the excess shall be refundable.
Any employer whose business was fully or partially suspended in 2020 due to government orders associated with COVID-19 or that experienced a significant decline in gross receipts (or that is a tax-exempt organization) may be eligible to receive this refundable employment tax credit.
A significant decline in gross receipts is generally established when a business’s gross receipts in a calendar quarter in 2020 are less than 50 percent of the gross receipts of the same calendar quarter in 2019.
For purposes of the credit, qualified wages vary depending on whether the employer has more than 100 full-time employees or not.
For those with more than 100 full-time employees, qualified wages are those paid to employees when they are not providing services due to the COVID-19 outbreak.
For those with 100 or fewer full-time employees, essentially all wages qualify for the credit.
The credit amount is equal to 50 percent of the qualified wages of an employee, but such wages cannot be more than $10,000 per employee.
No credit is available for any employee for which the employer is also allowed a Work Opportunity Credit
Employers who received Small Business Act loans that were forgiven under the CARES Act are not eligible for this credit.
Expanded Family and Medical Leave Act:
The federal government expanded Family and Medical Leave Act (FMLA) benefits to employees who are unable to work due to the COVID-19 crisis.
Employees sick or quarantined due to COVID-19 can receive up to two weeks (80 hours) of paid leave at 100% of their salary.
The employer will receive a payroll tax credit for that paid leave, up to $511 per day, for a total of 10 days.
Employees caregiving for someone impacted by COVID-19 can receive up to two weeks (80 hours) of paid leave.
The employer must pay the employee two-thirds of the person’s regular pay.
The employer will receive a payroll tax credit for two-thirds of the employee’s wages, up to $200 per day for a total of 10 days.
Employees who have worked for the employer for at least 30 days may also receive an additional 10 weeks of paid leave if they’re unable to work because their child’s school or childcare provider is closed or unavailable.
The payroll tax credit can be claimed quarterly. For self-employed people, there will be a tax credit equal to the sick leave amount.
This applies to businesses with less than 500 employees.
Small businesses with fewer than 50 employees may qualify for an exemption if leave requirements would jeopardize the business.
Modifications for Net Operating Losses:
Taxpayers now can carryback net operating losses (NOL) arising in 2018, 2019, and 2020 to the prior five tax years.
Losses carried over to 2019 and 2020 are now permitted to offset 100% of taxable income.
Taxpayers may elect to forgo the carryback, and instead carry the loss forward.
Qualified Improvement Property:
The Bill provides a technical correction to the TCJA by giving qualified improvement property it’s intended 15-year recovery period (instead of a 39 year recovery period)
Taxpayers can elect to file amended 2017 – 2019 returns to claim the benefits of accelerated depreciation for qualified improvement property placed in service after September 27, 2017.
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