How Your Small Business Can Benefit from the CARES Act
What started as a health crisis in Wuhan has quickly become a global financial crisis. To ease economic stress during the pandemic shutdown, Congress passed the Coronavirus Aid, Relief, and Economic Security or “CARES” Act. Pres. Trump promptly signed the Act, releasing an unprecedented $2.2 trillion in financial relief. For small businesses feeling the squeeze, the CARES Act could provide the immediate assistance they need to get through the worst of the crisis. At Breon & Associates, our accounting professionals are ready to help your small business weather the storm. We provide personalized assistance to direct you towards the resources you need to keep the lights on and your business moving forward.
Business Tax Provisions under the CARES Act
The CARES Act eases the business tax burden during this crucial period. Some of the more critical provisions include:
- Tax credit for employee retention — If your company is forced to fully or partially suspend business due to COVID-19, the business is eligible for a refundable payroll tax credit for 50% of wages paid by an eligible employer to certain employees up to $10,000 (including health benefits). The credit is not available to employers receiving the Small Business Interruption Loans, nor can you include wages used for required paid sick, family, or medical leave credits. For employers with fewer than 100 employees in 2019, all employee wages are eligible regardless if they are furloughed. If you averaged over 100 employees in 2019, only the wages of employees who are furloughed or face reduced hours are eligible. This applies to wages paid between March 12, 2020 and December 31, 2020.
- Deferred payroll tax payments — Employers can defer payment of the employer portion of social security payroll taxes through the end of 2020. You cannot take advantage of this if you had SBA loan indebtedness forgiven. You will be required to pay these amounts with 50% being due by December 2021 and the remaining 50% being due by December 2022. The rules can also be applied to self-employed individuals.
- Net operating losses — The Act temporarily allows noncorporate taxpayers (e.g. pass-through businesses and sole-proprietorships) to deduct excess business losses arising in 2018, 2019, & 2020. In addition, businesses can now carry net operating losses from 2018, 2019, and 2020 back five tax years preceding the tax year of such loss. The 80 percent taxable income limit is also temporarily suspended allowing businesses to offset 100 percent of their taxable income with an NOL for those years.
- Business interest limitation — The Act increases the taxable income deduction limit from 30 percent to 50 percent of taxable income for 2019 and 2020.
- Qualified improvement property — The Act corrects the life of qualified improvement property from 39 years to 15, retroactive to January 1, 2018. This allows you to take bonus depreciation on qualified improvement property.
Additional provisions for the deductibility of employer payments of student loans and corporate AMT were also enacted.
What businesses are eligible for CARES Act loans?
In general, any business with fewer than 500 employees that has need of relief to cope with COVID-19 related stresses is eligible. However, there are instructions for lenders to prioritize loans according to a variety of considerations. Businesses in Sector 72, the “accommodation and food services” sector, are eligible to apply by physical location, if that location employs fewer than 500 people.
Loans for Small Businesses under the CARES Act
“Paycheck Protection Program Loans” – Generally, businesses in operation as of February 15, 2020 can apply for a Paycheck Protection Loan so that you can retain your workforce. But you can also apply proceeds to:
- Mortgage interest and rent
- Certain utilities
- Other business expenses
Loan amounts are designed to cover as much as two-and-a-half times your annual payroll up to $10 million. Payroll costs include:
- Salaries and wages
- Leave (vacation, parental, family, medical or sick)
- Health care & retirement benefits
Eligible payroll expenses do not include:
- Compensation to any employee or independent contractor in excess of $100,000
- Any compensation of an employee residing primarily outside the U.S.
- Qualified sick leave or family medical leave for which a company can receive credit under the CARES Act. Note there is no double counting of benefits, taking a loan could exclude you from other provisions under the CARES Act.
You can have up to 10 years to repay at an interest rate of 4 percent or less (if not forgiven). Standard fees may be waived, and a business owner need not make a personal guarantee. Borrowers can also apply for a deferment for a period of six months not to exceed a year.
You can also receive tax-free forgiveness for qualifying payments you make over the 8-eight-week period beginning on the date of the loan. These include amounts you spend on payroll, mortgage interest, rent, and certain utilities.
To learn more, please visit the U.S. Department of The Treasury Paycheck Protection Program Loans page
Emergency Government Disaster Loans and Grants — The CARES Act expands eligibility to Economic Injury Disaster Loans (EIDL). This includes loans to businesses with under 500 employees including sole proprietors, independent contractors, or Employee Stock Ownership Plans. Loans do not require personal guarantees for amounts less than $200,000. If you have already taken out an SBA Disaster Loan since January 31, 2020, you can refinance under this provision. You can take both a Paycheck Protection Program loan and an EIDL as long as you don’t use them for the same purpose (no double counting).
The CARES Act also creates a new Emergency Grant that allows a business to obtain an immediate advance up to $10,000 while applying for an EIDL. The borrower need not repay the advance, even if the application for the loan is denied. The Grant can be used for payroll, rent, or obligations that can’t be met due to revenue loss.
Existing SBA loan relief – If you had a preexisting SBA loan, the SBA will pay principle, interest, and fees on certain SBA loans for six months.
The summary we’ve presented is necessarily brief and general and is subject to change as additional information becomes available or revisions are made. This is a very fluid environment. As always, the nitty-gritty of the law is complex, and this summary is not all inclusive. Before taking any action, please seek professional advice.
Contact Breon & Associates in Harrisburg for trustworthy business accounting services
Breon & Associates can prepare, compile, review, and audit financial statements for a wide range of organizations throughout Pennsylvania. During this time of potential hardship, we are ready with the up-to-date knowledge you need to maximize any assistance the law affords.
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Harrisburg, PA 17101
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Ephrata, PA 17522
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Wyomissing, PA 19610