We want to thank our valued clients again for your patience and understanding during this time of uncertainty. Things are changing on a daily basis, but please trust that we are working hard to provide you with updated and accurate information as we receive it.
A lot has happened the last few days. Please review the below summary of the recent legislation and our recommendation on how to proceed.
President Trump officially signed into law the updated version of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The CARES Act is the third round of federal government support in the wake of the coronavirus public health crisis.
Some of the main provisions the CARES Act provides to small businesses:
Small businesses with 500 or fewer employees will be able to take advantage of emergency grants and a forgivable loan program for companies. The bill also encourages companies to keep employees on the payroll with changes to rules for expenses and deductions.
- Payroll Tax Credit: Employers are eligible for a 50 percent refundable payroll tax credit on wages paid up to $10,000 during the crisis. The credit would be available to employers whose businesses were disrupted due to virus shutdowns and those that had a decrease in gross receipts of 50 percent or more when compared to the same quarter last year. The credit can be claimed for employees who are retained but not currently working due to the crisis for firms with more than 100 employees, and for all employee wages for firms with 100 or fewer employees. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
- Delayed SS Payment: Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period.
- Note the above programs are not available for small businesses who participate in the Paycheck Protection Program Loan, discussed below.
SBA Program under the CARES Act
- Paycheck Protection Program Loan
- Provides Forgiveness for Small Business Loans for Keeping Employees
- The bill creates a “paycheck protection program” for small employers, self-employed individuals, and “gig economy” workers, with $350 billion to help prevent workers from losing their jobs and small businesses from going under due to economic losses caused by the COVID-19 pandemic. The “Paycheck Protection Program” would provide 8 weeks of cash-flow assistance through 100 percent federally guaranteed loans to small employers who maintain their payroll during this emergency. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven. Loans are available through June 30, 2020.
- Emergency Economic Injury Grants
- Grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent and mortgage payments.
- Small businesses can apply to both programs provided the funds are not used to cover the same costs.
Some of the main provisions the CARES Act provides to individuals include:
- Recovery Rebates: The bill would provide a $1,200 refundable tax credit for individuals and $2,400 for joint taxpayers. Additionally, taxpayers with children will receive a flat $500 for each child. It will be based on the 2018 return unless the 2019 return has been filed. Amounts are reduced for higher income taxpayers and begin phasing out after a single taxpayer has $75,000 in adjusted gross income and $150,000 for joint filers.
- Extra Unemployment Payments: The bill makes major changes to unemployment assistance, increasing the benefits and broadening who is eligible. The updated CARES Act includes an additional $600 per week payment to each recipient for up to four months, and extends Unemployment Insurance benefits to self-employed workers, independent contractors, and those with limited work history. The federal government will provide temporary full funding of the first week of regular unemployment for states with no waiting period and extend UI benefits for an additional 13 weeks through December 31, 2020 after state UI benefits end.
- Insurance coverage: The bill requires all private insurance plans to cover COVID-19 treatments and vaccine and makes all coronavirus tests free.
There is a lot of information out there right now. Here’s what we recommend your next steps should be in order to take advantage of available relief and support:
- There are a lot of options for small businesses available through the CARES Act and the SBA – this being said there are lot of choices to make too. We recommend that you reach out to your DMS Accountant and discuss your situation. We are happy to provide you our recommendation based on your specific situation and guide you through this challenging time.
- For businesses, we strongly encourage you to reach out to your lenders now as we anticipate there will be significant demand for the forgivable SBA loans. In the event that you would like a referral to a local bank that will be supporting this program, please let us know and we are happy to provide an introduction.
- Individuals who have been laid off due to COVID 19 should file for unemployment as soon as possible. Because of the high-volume of filings currently, you may experience difficulty when applying online. Try visiting the site during off hours, including early mornings or evenings.
Our goal at DMS is to be here to help and support you to the best of our ability. Please do not hesitate to reach out if we can provide any immediate assistance. During the coming weeks, expect further updates from us as additional new regulations and legislation applying to small businesses.
Thank you for your patience and continued support.
Sean Brady, CPA
DMS Management Solutions