On Friday, March 27, 2020, President Trump signed the Coronavirus Aid Relief and Economic Security Act (“Cares Act”), into law. It provides significant relief for small business and expanded unemployment benefits for individuals. Below are some highlights.
The CARES Act includes nine business tax provisions, including a credit to retain workers during COVID-19 related closures, deferral of payroll tax payments for two years, a change to the tax treatment of business losses and some technical corrections to the Tax Cuts and Jobs Act. Below are some key points on the payroll tax credit and payroll deferments.
The payment would scale down by income, phasing out entirely at $99,000 for singles and $198,000 for couples without children. Qualifying income levels will be based on 2019 federal tax returns, if already filed, and otherwise on 2018 returns. (Treasury Secretary Steven Mnuchin earlier this month delayed the filing deadline until July 15.) Payments should be received in three weeks.
It is important for companies to understand how the CARES Act may benefit your business. This can be an overwhelming process. Contact us today to see how we can assist you in navigating available benefits, applications for these programs and weighing your particular eligibility for them. If you have questions, please contact Michael C. Allen & Co., CPA’s PLLC.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) signed into law on March 27, 2020, by President Trump provides a substantial temporary revamp of small business loans under Section 7(a) of the Small Business Act. The CARES Act’s “Paycheck Protection Program” (PPP) expands the scope of businesses eligible for Section 7(a) loans, alters the maximum loan amounts and permitted uses of loan proceeds, and affords repayment relief and loan forgiveness to borrowers. PPP loans are those made between February 15, 2020, and June 30, 2020 (“Covered Period”).
The PPP waives SBA affiliate rules regarding aggregated employee count for certain applicants. If a borrower has an “affiliate” as defined in the SBA rules, the relevant calculation of full-time employees (FTEs) – which cannot exceed 500 to qualify under the Small Business Act – is aggregated across all of the relevant affiliates’ companies. But there is a waiver from affiliate status under the PPP. It applies only to NAICS code 72 businesses, franchises identified as such by the SBA, and businesses that receive financial assistance from a licensed Small Business Investment Company. All other businesses, including nonprofit organizations, will need to determine their eligibility based on a fact-intensive analysis under SBA rules and regulations that includes assessing common control by virtue of entities controlled by significant equity stakeholders and overlapping board membership, among other factors. This may have significant implications for joint ventures, private equity-backed businesses and family office-backed businesses.
Lenders are not permitted to require personal guarantees from business owners, nor will a business need to provide collateral to secure a PPP loan. Additionally, a business will not need to demonstrate that it is unable to obtain credit elsewhere. Rather, lenders may only consider whether an applicant was in operation on February 15, 2020, and had employees for whom the applicant paid salaries and payroll taxes.
The SBA must guarantee 100% of PPP loans and may not charge lender or borrower fees in connection with loan applications. The SBA may not seek recourse against any individual, shareholder, member or partner of a borrower for nonpayment of a PPP loan, except to recover proceeds used for unauthorized purposes.
The PPP offers low maximum interest rates, guaranteed deferment periods and no prepayment penalties. Interest rates are capped at 4%. Applicants who previously received an SBA Economic Injury Disaster Loan (EIDL) between January 31, 2020, and the date PPP loans are first available may refinance the EIDL into a PPP loan.
In addition, the SBA is instructed to require that all lenders provide impacted borrowers with complete payment deferment for a period of at least six months and not more than one year. An “impacted borrower” is any borrower that was in business on February 15, 2020, and has an application for a loan approved or pending approval at the time the CARES Act is enacted. The SBA must consider all PPP loan recipients to be impacted borrowers. Lenders are not permitted to charge prepayment penalties.
PPP loans may be used for payroll costs, interest payments, rent and utilities. In addition to the various permitted uses under the Small Business Act, a PPP loan may be applied to pay any of the above payroll costs, interest on any mortgage obligation, interest on any other debt obligation incurred before the Covered Period, rent and utilities.
A recipient of an EIDL that was obtained between January 31, 2020, and the date PPP loans are first available is not precluded from receiving a PPP loan so long as the EIDL was obtained for purposes of paying costs other than payroll costs and the above obligations.
PPP loans may be eligible for total or partial forgiveness with no federal tax consequences. PPP loans may be forgiven up to the amount of payroll costs and certain mortgage, rent and utility payments paid during the eight-week period beginning on the date of the loan’s origination. The amount forgiven will not be considered gross income for federal tax purposes.
The amount forgiven may not exceed the loan’s principal. The forgiveness amount is not automatic, it is tied to employment and salary figures. The total loan forgiveness amount is reduced in proportion to any reduction in the average number of FTEs compared to a prior period and/or in an amount equal to any reduction of an employee’s compensation in excess of 25% of the individual employee’s compensation measured by their compensation in the prior full quarter.
To encourage rehiring, the amount forgiven will not be reduced if a borrower rehires FTEs, so that its employment level exceeds the average monthly FTE figure as calculated on June 30, 2020. Similarly, the compensation-based reduction will not be considered if a borrower eliminates a 25% decrease in the total compensation figures by June 30, 2020.
Borrowers must submit an application for forgiveness to their lender that includes a certification and documentation demonstrating the relevant FTE figures, as well as their payroll costs, mortgage payments, rent payments and utilities payments. Forgiveness will not be given without sufficient documentation, so borrowers are encouraged to develop and implement comprehensive recordkeeping practices. Lenders are required to render a decision on an application no later than 60 days after it is submitted.
Any loan amount not forgiven remains subject to the same terms and conditions, including a 100% SBA guaranty, maximum interest of 4%, and no prepayment penalties. The loan matures no more than 10 years after the date of the application for forgiveness.
The SBA is instructed to provide guidance related to PPP loans within 30 days of enactment (or before).
WASHINGTON — The U.S. Treasury Department, Internal Revenue Service (IRS), and the U.S. Department of Labor (Labor) announced that small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed by President Trump on March 18, 2020.
The Act will help the United States combat and defeat COVID-19 by giving all American businesses with fewer than 500 employees funds to provide employees with paid leave, either for the employee's own health needs or to care for family members. The legislation will enable employers to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week.
WASHINGTON — The Treasury Department and Internal Revenue Service announced that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020.
Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
Taxpayers do not need to file any additional forms or call the IRS to qualify for this automatic federal tax filing and payment relief. Individual taxpayers who need additional time to file beyond the July 15 deadline, can request a filing extension by filing Form 4868 through their tax professional, tax software or using the Free File link on IRS.gov. Businesses who need additional time must file Form 7004.
The IRS urges taxpayers who are due a refund to file as soon as possible. Most tax refunds are still being issued within 21 days.
"Even with the filing deadline extended, we urge taxpayers who are owed refunds to file as soon as possible and file electronically," said IRS Commissioner Chuck Rettig. "Filing electronically with direct deposit is the quickest way to get refunds. Although we are curtailing some operations during this period, the IRS is continuing with mission-critical operations to support the nation, and that includes accepting tax returns and sending refunds. As a federal agency vital to the overall operations of our country, we ask for your personal support, your understanding – and your patience. I'm incredibly proud of our employees as we navigate through numerous different challenges in this very rapidly changing environment."