In response to the COVID-19 pandemic, Congress has passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This legislation is the third round of federal funding aimed at providing economic support for individuals and businesses. Below are some of the key provisions relating to small businesses and companies.
- Paycheck Protection Program (PPP) – The CARES Act establishes a new loan program through the Small Business Association (SBA), to provide financing for businesses with less than 500 employees, including sole proprietors and independent contractors. Eligible businesses may borrow up to the lesser of $10,000,000, or 2.5 times their prior year’s average total monthly payroll costs (subject to some limitations). Loan proceeds that are used to cover certain costs over an 8-week period, may be eligible for complete or partial forgiveness. Amounts not forgiven must be paid back over a 10-year period and have a maximum interest rate of 4%.
- Economic Injury Disaster Loans (EIDLs) – These disaster relief loans administered by the SBA have been around for a long time, providing working capital loans to small businesses. EIDLs offer 30-year loans up to $2,000,000, with interest rates of 3.75% and 2.75% for small businesses and nonprofits respectively. The CARES Act provides for an advanced payment of up to $10,000 for those businesses applying for this type of loan. The $10,000 advance will be paid within three days of the request, and may be used to maintain payroll, provide sick leave to employees, make rent/mortgage payments, meet increased production costs due to supply chain disruptions, or pay other business obligations. The $10,000 advance is not required to be repaid under any circumstances.
- Small Business Debt Relief Program – The SBA will cover all loan payments for six months, for small businesses who have new or existing SBA loans, that are not EIDLs or PPP loans. Payments covered include interest, principal, and fees.
- Employee Retention Credit for Employers Subject to Closure Due to COVID-19 – This provision of the CARES Act provides a refundable tax credit for businesses and nonprofits meeting at least one of the two criteria:
- A business whose operations have been fully or partially shut down due to governmental authority limiting commerce, travel, or group meetings due to COVID-19.
- A Business whose revenue (not profit) in 2020 is at least 50% less than revenue from the same quarter in 2019.
The credit is equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee. The calculation of wages for purposes of determining the credit vary by business, employee, and payment type. Any business who believes they are eligible for this credit should consult with their tax advisor. Employers receiving assistance through the Paycheck Protection Program are not eligible for this credit.
- Deferral of Payment of Payroll Taxes – This provision allows taxpayers (including the self-employed) to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021 and the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability. Employers receiving assistance through the Paycheck Protection Program are not eligible for this deferral.
Stay tuned for more in depth analysis on these, and other, provisions affecting small businesses.