As of March 27, 2020, the U.S. President signed a bill known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) intended to help citizens with the turmoil the pandemic has summoned by providing economic relief to individuals, families, small businesses and other sectors of the United States economy. We discuss some key CARES Act provisions for businesses and individuals to understand how it will apply to their income and earnings.
The Paycheck Protection Program
The Paycheck Protection Program is intended to guarantee loans for small businesses. A portion of this loan can be forgiven if used for certain payroll costs and operating costs during the COVID-19 pandemic. The following is a list of the general provisions for the paycheck protection program:
- Lenders: Local financial institutions.
- Covered Period: February 15, 2020 to June 30, 2020.
- Eligibility: Businesses with 500 employees or less, sole proprietors, and independent contractions.
- Maximum Loan Amount: The amount available to any eligible business will be the lesser of: (a) 2.5 x Average total monthly payroll costs for the 1-year period prior to the loan or (b) $10,000,000.00.
- Payroll Costs Defined: Salaries, wages, payroll taxes, and benefits
- Payroll Costs Excluded: Any individual employee with payroll costs in excess of $100,000 is excluded from the maximum loan amount, and any payroll costs for employees residing outside of the United States.
- Allowable Use: Payroll costs, interest payments on mortgage obligations, rent, and utilities.
- Guarantees and collateral: None.
- Fees: None.
- Interest Rate: No higher than 4%.
- Terms: 10 years, with 6 to 12 months payment deferral for most significantly impacted businesses.
- Loan Forgiveness: Available allowable use expenditures made during the 8-week period beginning the date of loan origination.
- Reduction of Forgiveness:
1. Average number of full-time equivalent employees (FTE) per month during the 8-week period.
Divided by either (a) or (b)
a. Average FTE between February 15, 2019, and June 30, 2019.
b. Average FTE between January 1, 2020, and February 29, 2020.
2. Any decrease in salary or wages in excess of 25% during the 8-week period following the loan compared to the preceding quarter for any employee who did not receive salaries and wages in any 2019 pay period that would equate to over $100,000 on an annualized basis.
3. Employers who re-hire employees or return their wages to prior levels prior to June 30, 2020, will not be penalized for the reductions arising between February 15, 2020, and 30 days after enactment of the CARES Act.
- Documentation: Verification of employees and pay rates by way of payroll tax filings, unemployment insurance filings, and other documentation; and evidence of mortgage interest, lease and utility payments; and the appropriate business representative will also be required to certify that the above documentation is true and correct and that the amount sought to be forgiven was used for the outlined purposes.
- Key Business Tax Provisions:
- Companies may use tax losses in 2018, 2019 and 2020 to offset income from the prior five years, resulting in tax refunds for businesses and their owners.
- The maximum amounts of business interest deduction limitations have been increased for 2019 and 2020.
- Eligible employers may defer their share of 2020 payroll tax and pay them over two years.
- Eligible employers may receive a refundable payroll tax credit for companies who keep workers on their payroll during the COVID-19 pandemic, up to $10,000.
- The 2018 tax reform bill imposed a one-time tax on earnings held overseas, which could be paid over eight years. The IRS has taken the position that companies cannot receive refunds until the eight-year period is completed. The bill overturns the IRS position.
- Companies may accelerate recovery of Corporate Alternative Minimum Tax (AMT) Credits.
- Businesses in retail, restaurants, and hotels can write off certain facilities improvements immediately.
The CARES Act is equipped to grant checks of up to $1,200 to single individuals and $2,400 to married couples (as well as $500 per child). Check grants begin to reduce if an individual’s income exceeds a threshold amount of $75,000 and if married filers’ income exceeds $150,000. These checks are completely eliminated once income reaches $99,000 for individuals and $198,000 for joint filers with no children.
Retirement Account Distribution Penalty
In addition to the stimulus checks, the CARES Act waives the 10% penalty for early distributions from certain retirement plans for individuals diagnosed with COVID-19, whose spouse or dependents have been diagnosed, or who experience adverse financial consequences from the virus.
Here to Help, Through Thick and Thin
The professionals of Biel Fisette Iacono will continue to serve our clients’ needs during this pandemic. We will continue to monitor updates from the U.S. Treasury along with any state and local agencies for any other relief that will help our local business owners flatten the economic effects of this current situation. If you have questions or concerns please contact your professional representative, or contact our main line at (972) 633-2622.