Chief Tax Information Officer
Published on: May 04, 2020
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Congress recently passed over $3T in funding through the CARES Act (Coronavirus Aid, Relief, and Economic Security) and Paycheck Protection Program that included provisions to help small businesses weather the economic downturn.
The two bills represent more than $3T in economic stimulus, unprecedented in both size and scope. Though the rollouts were both a bit bumpy as government agencies and private lenders continued to work through a variety of unexpected issues, the stimulus bills were written quickly to help business owners, hospitals, testing sites, and individuals avoid the worst of a potentially massive economic downturn.
A large part of both bills includes provisions intended to help small businesses weather the cash crunch that will inevitably arise from weeks or months of being closed. These provisions provide everything from loan forgiveness to long-term, low-interest loans, including:
Paycheck Protection Program is a Small Business Administration (SBA) loan designed to keep workers on a company’s payroll. If the money is used for payroll, rent, mortgage, or utilities, and employees are kept on the payroll for 8 weeks, all of the loan can be forgiven.
Economic Injury Disaster Loans are low-interest, long-term federal disaster loans to help small businesses overcome a temporary loss of revenue.
Payroll Tax Deferment allows employers to postpone the deposit and payment of the employer’s share of an employee’s Social Security tax, with half paid by 12/31/2021 and the balance paid by 12/31/2022.
SBA Express Bridge Loan allows small businesses with an existing relationship with an SBA Express Lender to quickly access up to $25,000 which can be repaid in full or part by an Economic Injury Disaster loan.
SBA Debt Relief allows the SBA to pay up to 6 months of principal, interest, and associated fees for all current 7(a), 504, and Microloans as well as new loans disbursed up until 09/27/2020.
Employee Retention Credit is a fully refundable tax credit equal to 50% of employee wages (up to $5,000) that are paid between 03/13/2020 and 12/31/2020.
One of the most serious risks of closing all nonessential businesses is the tens of millions of employees who would be laid off or furloughed suddenly applying for unemployment benefits. To keep people employed, in mid-April Congress passed a law providing emergency funding for impacted businesses, including forgivable loans to cover their payroll expenses.
The good news is that the owner of any business with fewer than 500 employees can apply for funding under the PPP. This includes businesses that are 501(c)(3) non-profit, 501(c)(19) veteran’s organization, or Tribal businesses, as well as sole proprietors, independent contractors, and self-employed individuals.
You can learn more and download the PPP application on the SBA website.
As part of the CARES Act, Congress allocated additional funds for Economic Injury Disaster Loans (EIDL). Businesses with fewer than 500 employees experiencing a temporary loss of revenue due to the shutdown could apply for a loan of up to $2 million. The money could be used for any operating expenses and could be repaid over a term of up to 30 years at just 3.75% interest (2.75% for private non-profits).
You can learn more about the EIDL on the SBA website.
If a small business owner needs money quickly, he or she can apply for up to $25,000 as a Disaster Bridge Loan through the SBA. The benefit of this program is to get money into business owners' hands quickly and tide them over so they can meet rent and other financial obligations. Unfortunately, since this is a bridge loan, it was originally assumed that business owners could pay it back quickly with some of the proceeds from the EIDL.
You can learn more about Disaster Bridge Loans on the SBA website.
Normally, all employers are responsible for paying half of each employee’s Social Security taxes. But, as part of the financial relief in the CARES Act, employers, and self-employed individuals can now defer the payment and deposit of those taxes that would normally have been made between 03/27/2020 and 12/31/2020. This applies even to business owners who have received a PPP loan. This provision allows business owners to pay 50% of the deferred taxes by 12/31/2021, and the remaining 50% by 12/31/2022 with no penalties or interest. It will allow business owners to hold onto capital they may need until the shutdown ends and their cash flow is restored.
You can learn more by visiting the IRS website.
In order to keep as many people employed as possible, Congress included a unique tax credit in the CARES Act. It provides business owners whose business was closed by government order due to the Coronavirus to take a credit of 50% of up to $10,000 in wages paid to each employee. A business qualifies for the credit for each quarter in which receipts are less than 50% of the comparable quarter in 2019. Employers can take immediate advantage of the credit by reducing their payroll tax deposits that have been withheld from employees’ wages by the amount of the credit.
Learn more about the Employee Retention Credit at the IRS website.
Ordinarily, a small business owner experiencing cash flow issues could request temporary relief from SBA loan payments by requesting a 6-month deferment of his or her loan payments from their lender. As part of the CARES Act, however, the SBA will now automatically take over payments for the next 6 months, starting with the next payment. This applies to all current loans that are up-to-date, as well as any loan disbursed before 09/27/2020. In addition, the SBA will issue automatic deferments through 12/31/2020 for any loan that was up-to-date as of 03/01/2020.
For further details, contact your lender or visit the SBA website.
The CARES Act provides an enormous amount of financial assistance to small businesses that have been hit hard by the shutdown due to the Coronavirus. But with all the temporary credits, loans, and other financial assistance it provides, your 2020 tax return could be more complicated than usual.
Of course, if you have questions about how the CARES Act affects your 2020 tax return, we can help. Until then, let’s just take it one day at a time.
About the Author
Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.
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