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CARES Act: 5 Things You Need to Know For Your Business - COVID Relief

Posted by Doug Carpenter to Taxes, Business Advice

CARES Act benefits for businesses 

Updated October 28 to reflect changes made since the CARES Act passed in March.


The Coronavirus Aid, Relief, and Economic Security (CARES) Act, became federal law on March 27, 2020. Since then, business owners have had numerous questions about how the CARES Act helps them through this drastic economic crisis.


Our tax experts and CFOs have reviewed the changes to the CARES ACT to help CEOs and entrepreneurs understand how this and other government relief will help your business and team.


Here are five important things you need to know about what is in the CARES ACT for businesses based on questions you might be asking yourself:


1. How do I protect my employees? The Paycheck Protection Program might be right for you

If you’re one of the millions of business owners trying to keep their employees on payroll and businesses open, the Paycheck Protection Program was created to help keep workers at work. The program has provided cash-flow assistance of over $525 billion through 100% federally guaranteed loans to eligible small businesses who maintain their payroll during the coronavirus pandemic.


Under this emergency loan program (which has zero cost to apply for), employers can get a loan, with an interest rate of 1%. The loan proceeds can be used to cover eligible costs incurred within either 8 weeks (solely for loans approved before June 5, 2020) or 24 weeks (referred to as the “covered period”) of receiving the loan.


Are you eligible to apply for and get one of these loans?

  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) with up to 500 employees or that meets the SBA’s “small business concern” definition are eligible to apply.
    • Quick note:
      Under this program, your total number of “employees” includes your full-time and part-time employees, in addition to individuals who work with you seasonally or temporarily.

      Affiliation rules apply, please see SBA’s affiliation guidelines for more information. This could have a significant impact on venture capital-backed companies, which means many tech companies might see an impact here.
  • Sole proprietors, independent contractors, and self-employed persons are eligible to apply for PPP loan.
  • Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location may apply for a PPP loan.

How much can you borrow and what are the terms?

  • The maximum amount of a PPP loan is either 2.5% of your average monthly payroll costs OR $10 million, whichever is less. Visit How to Calculate a Loan for details.
    • Quick note:
      Payroll costs do include salaries, wages, payment of cash tips, vacation, and several other types of paid leave, health and retirement benefits, and state and local taxes (relating to payroll and not covered by some other emergency loan or grant). Payments to sole-proprietors and independent contractors of not more than $100,000 in one year (with some prorating rules) are included.

      Payroll costs do not include compensation for employees with payroll costs over $100,000, employees who domicile principally outside of the U.S., and any qualified sick or family medical leave eligible for a Coronavirus relief credit.
  • If a borrower does not apply for loan forgiveness, repayment starts 10 months after the end of the covered period.
  • Loans issued before June 5, 2020, have a maturity of 2 years. Loans issued after June 5, 2020, have a maturity of 5 years.
  • Loans will be issued via the SBA’s network of 7(a) program lenders and will be 100% guaranteed by the SBA.To expedite the application process, application fees and closing costs were not allowed and no collateral or personal was guarantee required.

What can the PPP loan be used for?

The loan can be used to help cover payroll costs (including costs related to the continuation of group health care benefits), mortgage interest payments, rent, utilities, and interest on prior debt for the 8-week period beginning on the date of loan.


When and how can you apply for a PPP loan?

  • The PPP program is closed as of August 8, 2020 by law. Congress and the Secretary of State are in discussions on restarting the PPP which has $130 billion in unallocated funds remaining.

Get the latest on the PPP and other government relief efforts that could impact your business from us. Sign up for our blog, here.


2. How do I just keep the lights on for now? Let’s talk about the Economic Injury Disaster Loan and Grant

One valuable part of the CARES Act is the expansion of the Economic Injury Disaster Loan (EIDL) and Emergency Economic Injury Grants


Are you eligible to apply for and get one of these loans?

Eligibility for the COVID-19 EIDL loan includes the following:

  • Businesses, cooperatives, and agricultural companies with fewer than 500 employees (a few exceptions apply)
  • A business that meets the SBA Size Standards
  • Sole proprietors, with or without employees, and independent contractors
  • Faith-based businesses
  • Most private not-for-profit businesses
  • U.S. citizens as well as non-citizen nationals and qualified aliens with 20% interest in an eligible business may apply.
  • Businesses with credit available elsewhere are not eligible

How much can you borrow and what are the terms?

  • The COVID-19 Economic Injury Disaster Loan amount ceiling is $2 million.
  • The interest rate is 3.75% for small businesses and 2.75% for non-profits. Payments are deferred for a year; interest still accrues. There are no prepayment penalties.
  • The loan matures in 30 years and is not eligible for forgiveness.
  • A general security agreement (UCC) designating business assets as collateral is required for loans over $25,000.
  • The CARES Act waived personal guarantees for loans under $200,000.
  • Up to $25,000 is available for qualified businesses with an urgent need to bridge the gap while awaiting a decision or disbursement on an EIDL loan and will be repaid in part or in full by the proceeds from the EIDL loan.
  • You may submit more than one application for each eligible business that you own.
  • Borrowers may request an increased or decreased loan amount (by providing documentation) for 6 months of working capital.

What can the EIDL loan be used for?

EIDL may be used more broadly than PPP funds as working capital to cover sick leave, meet increased production costs due to supply chain disruptions, or pay business obligations, including debts, rent, and mortgage payments. EIDL funds cannot be used for business activity.


When and how can you apply?

You can apply for these loans now until December 31, 2020, through the SBA’s website. Click on this link to get started right away.


See a side-by-side comparison of the Economic Disaster Injury Loan to the Paycheck Protection Program to see which is right for your business.


The EIDL Advance (aka the Emergency Economic Injury Grant) funds have all been allocated and by law, the SBA can no longer issue advances.


EIDL loan applications are still being processed. If you received both a PPP loan and an EIDL Advance the amount will be subtracted from the forgiveness amount of a PPP loan.


3. What are my options for loan forgiveness? Here’s how you can get the Paycheck Protection Program loans forgiven

Initially, the PPP made loan forgiveness available to borrowers who were able to maintain or rehire to reach pre-COVID levels of employment without reducing wages or salary during the covered period so long as the majority of the PPP loan was used for payroll. In June, the PPP Flexibility Act made many important changes to forgiveness rules including flexibility for reduced headcount, partial forgiveness of non-payroll expenses, and others. Get started with this link to the 3508ez form.


The AICPA and other concerned parties are lobbying for Congress to ensure tax deductibility of forgiven loan amounts. For now, forgiven loan amounts may be considered taxable income for businesses.


4. I heard there’s a new tax credit—the Employee Retention Credit. What’s the deal with that?

While both SBA loan options have merit, perhaps neither makes sense for your business, or perhaps your business doesn’t qualify for either. There are still options available for you, particularly in the tax realm. One in particular, the Employee Retention Credit - CARES Act, can be helpful to those businesses that have already had to close due to pandemic and government orders.


The Employee Retention Credit, like the PPP, was designed to encourage businesses to keep employees on their payroll. It’s a refundable tax credit that can be applied to quarterly payroll taxes. The maximum credit amount is $5,000 per employee. That’s a pretty big savings!


This credit is a fully refundable 50% tax credit applicable to the employer’s share of payroll taxes on wages up to $10,000 per employee. The credit is based on salaries and wages paid from March 13, 2020, through January 1, 2021.


Before we dive any deeper into this, we want to caveat this by saying that under the CARES Act, businesses can elect to take advantage of either the Paycheck Protection Program OR the tax relief options outlined below. You cannot take advantage of both.


Are you eligible for this tax credit?

  • Eligible Employers, for the purpose of the Employee Retention Credit includes nearly all US businesses, including most nonprofits, whose operations were either: fully or partially suspended because of an official government order related to COVID-19, OR who experienced a significant decline in gross receipts during the calendar quarter, usually a 50%, decline compared to the same fiscal quarter in 2019.
  • There are complex guidelines about what an eligible employer and employee are; talk with your tax professional.
  • Businesses that take Small Business Loans do not qualify.

How do I get the Employee Retention Credit?

Work with your payroll processor to reduce the amount of your federal payroll tax deposit by the amount of your eligible credit for each quarter on your quarterly employment tax returns or Form 941 beginning with the second quarter.


In addition to this credit, can I defer my payroll taxes?

Yes! The 6.2% of FICA that your business pays for employees, from March 27, 2020, to December 31, 2020, can be deferred and paid over two years. The amounts deferred would eventually be due, 50% by December 31, 2021, and 50% by December 31, 2022. In June, under the PPP Flexibility Act, employers with a PPP loan may defer the payment and deposit of the employer's share of Social Security tax, even if the loan is forgiven.

 

Have more questions about tax credits? Talk to our experts today to see how we can help.


5. What if I have an employee unable to work due to COVID? Get tax relief under the Families First Coronavirus Response Act

For those of you who have employees needing sick or family leave due to COVID-19, this is the section for you.


We’ve already broken down the Families First Coronavirus Response Act in a previous blog, but let’s take a moment to see what’s new and why you should care. First and foremost, this Act pertains to businesses with fewer than 500 employees and tax-exempt organizations. The CARES act has expanded on this with further clarification on various sick and family leave credits.


When can an employee claim paid leave?

An employee may claim paid leave for any of the following reasons related to the coronavirus public-health emergency:

  1. They have been exposed to the coronavirus or exhibit symptoms of it.
  2. They are recommended to be quarantined by a healthcare provider and cannot work from home.
  3. They need to care for a family member who has been exposed to or exhibits symptoms of the coronavirus.
  4. They need to care for a child younger than 18 years old because their school or daycare is closed, or their childcare provider is unavailable*.

*In August, the Department of Labor revised the regulation on intermittent leave for the purpose of caring for a family member or child due to exposure to COVID-19 or lack of childcare so long as such FFCRA leave is approved by their employer.


What tax relief do I get if my employee is on this paid leave?

  • You can collect a tax credit equal to 100% of qualified emergency sick-leave and family-leave payments.
  • Credit is up to $511 per day or $5,110 total per employee for wages paid to employees impacted by COVID-19 measures for a maximum of 10 days (individual is under quarantine by doctors’ orders, ill with COVID-19 like symptoms seeking diagnosis, or contracted the disease). OR $200 per day or $2,000 per employee total for care of a family member impacted by COVID-19 by either illness, seeking diagnosis for symptoms or for child care of a dependent or maximum of 10 days.
  • The credit, in some cases, is refundable.
  • Sick Leave and Family Leave payments are exempt from the employer portion of social security taxes.
  • You’re still obligated to pay the employer portion of Medicare taxes, but you can claim a credit for the payment.

How do I know what is the best option for my business?

We’ve just hit you with a lot of information and more than a couple of options. On one hand, it’s exciting to have some options to help get your business through this pandemic, but on the other hand, too much information makes for an overwhelming experience.


That’s what we’re here for. Let us help you figure out which option is best for you. You’re not alone in this.


Covid aid with inDinero

About the author
“Doug

Doug Carpenter

As the Senior Tax Director at inDinero, Doug has a passion for one thing, taxes. In fact, he's called Tax Doug. If he's not eating, drinking, and breathing taxes, he's enjoying the great outdoors


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