The Coronavirus Aid, Relief and Economic Security Act
Coronavirus Aid, Relief, and Economic Security Act
Helpful AccountEdge tips related to the US Governments CARES Act
Compiled from information provided on the US Chamber of Commerce website
Small Business Coronavirus
The coronavirus pandemic has created uncertainty and stress for many American small businesses. Part of the government’s response to assist businesses during this time is the recent passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). With a massive $2 trillion allocated for businesses, individuals, federal agencies, and state and local governments, the CARES Act has been designed to distribute capital quickly and broadly. Many of these changes will apply to small businesses all over the country, so it is vital to discuss with a tax professional which can apply to your company.
Paycheck Protection Program
The Paycheck Protection Program, one of the largest sections of the CARES Act, is the most important provision in the new stimulus bill for most small businesses. This new program sets aside $350 billion in government-backed loans, and it is modeled after the existing SBA 7(a) loan program many businesses already know. Currently, the SBA guarantees small business loans that are given out by a network of more than 800 lenders across the U.S. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll through June and expands the network beyond SBA so that more banks, credit unions and lenders can issue those loans. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions.
1. Changes to the SBA’s Economic Injury Disaster Loans (EIDLs) Another important aspect of the CARES Act for small businesses is that it expands eligibility for the SBA’s Economic Injury Disaster Loans (EIDLs). In early March, the SBA’s disaster loan program was extended to all small businesses affected by COVID-19, but the CARES Act opens this program up further and makes it easier to apply.
2. Business tax changes
The CARES Act makes select changes to taxes and tax policies in order to ease the burden on businesses impacted by COVID-19. These changes include:
- Businesses are eligible for an employee retention tax credit if 1.) your business operations were fully or partially suspended due to a COVID-19 shut-down order; or 2.) gross receipts declined by more than 50% compared to the same quarter in the prior year. Eligible businesses can get a refundable 50% tax credit on wages up to $10,000 per employee. The credit can be obtained on wages paid or incurred from March 13, 2020, through December 31, 2020.
- Businesses and self-employed individuals can delay their payroll tax payments. These payments, the employer share of Social Security tax owed for 2020, can instead be deferred and paid over the next two years. Fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022. (Note: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)
- Businesses that have net operating losses (NOLs) have some limitations relaxed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can be now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
- Businesses that were due to receive corporate alternative minimum tax (AMT) credits at the end of 2021 can instead claim a refund now, in order to improve cash flow during the COVID-19 emergency.
- Businesses will be able to increase their business interest expense deductions on their tax returns. For 2019 and 2020, the amount of interest expense businesses are allowed to deduct on their tax returns is increased to 50% from 30% of taxable income.
- Businesses, especially those in the hospitality industry, will be able to immediately write off costs associated with improving facilities, increasing cash flow.
- The government will make a temporary exception from the excise tax normally applied to alcohol, if that alcohol was used to produce hand sanitizer in 2020.
The CARES Act makes small changes to the Families First Coronavirus Response Act (FFCRA) in regards to paid sick leave, paid FMLA and more. These changes include:
Families First Coronavirus Response Act (FFCRA)
The Families First Coronavirus Response Act (FFCRA), which was signed by President Trump on March 18, goes into effect on April 1, 2020, and will remain in effect until December 31, 2020. While the full legislative package includes many provisions, including free coronavirus testing, food assistance and medical services budget increases, only four aspects of the law apply chiefly to businesses. One of the most important things to know upfront is that the paid leave provisions apply only to businesses with fewer than 500 employees. If your business has fewer than 50 employees, you may be able to apply for an exemption from the Secretary of Labor if providing either of the types of paid leave could “jeopardize the viability” of your business, according to the U.S. Department of Labor.
1. Emergency Family and Medical Leave Expansion Act The first section of the FFCRA that applies to businesses pertains to an expansion of the U.S. Family and Medical Leave Act (FMLA). Until the end of 2020, employers with fewer than 500 employees will now be required to provide employees with up to 10 weeks of paid FMLA. The first two weeks of the normal 12-week FMLA leave may be provided unpaid, but an employee may be able to be paid through the paid sick leave provision or other paid leave the employee has available. First, employers are required to offer employees unpaid leave (or accrued paid leave or paid vacation) for 10 days. After this, paid leave kicks in and employees are compensated at two-thirds of their regular rate. Paid leave cannot exceed $200 per day and $10,000 total for the full 10 weeks. This should be tracked as any normal Paid Family and Medical Leave wage category in AccountEdge.
2. Emergency Paid Sick Leave Act The second leave provision of the FFCRA that affects businesses is emergency paid sick leave. Until the end of 2020, employers with fewer than 500 employees must offer paid sick leave to those who meet criteria associated with the public health emergency.Full-time employees can receive up to 80 hours of paid sick leave, while part-time employees can receive pay based on the number of hours they would work during an average two-week period. If an employee qualifies based on the first three reasons above, they receive sick leave at their regular rate with pay capped at $511 per day and $5,110 total. If an employee qualifies based on the second three reasons above, they receive sick leave at two-thirds their regular rate of pay with amounts not exceeding $200 per day and $2,000 total. The Secretary of Labor is required to issue more guidelines to help employers formulate leave benefits by April 1. Emergency paid sick leave is offered in addition to any existing sick leave and/or paid time off that is already offered by an employer. This should also be tracked as any normal paid sick leave wage category in AccountEdge.
Both 1 & 2 are normal wage categories, but based on the dates being paid you should be able to view your AccountEdge reports for the correct amounts so you are able to correctly complete whatever reporting is necessary for business reimbursement.
3. Tax Credits for Paid Sick Leave and Paid FMLA To help employers afford the new paid sick leave and paid FMLA benefits, companies are able to seek reimbursement through tax credits. Each quarter, private companies are entitled to fully refundable tax credits for both paid sick leave and paid FMLA. The tax credits are applied against an employer’s already-owed Social Security taxes. However, if that offset is not enough to cover these payouts to employees, then the Treasury Department is authorized to help cover the rest with cash payouts. In addition, the Treasury is directed to issue regulations to waive penalties for businesses not submitting their payroll taxes if they do so in anticipation of a refund under the new law. In addition, the Treasury Department has said they will soon be releasing a form for small businesses to request an expedited advance on their refund. Additionally, an employer’s tax credit is increased by the amount the employer pays to maintain health care related to new sick leave and FMLA benefits. This will allow a company to maintain health care benefits while the employee is on leave.
4. Emergency Unemployment Insurance Stabilization and Access Act of 2020 Finally, the FFCRA also allocates $1 billion in funds for state unemployment programs and gives state governments new flexibility when it comes to workers needing unemployment insurance. The FFCRA eliminates the need for employees to wait a week before they are eligible for UI and eases work search requirements, meaning employees will be able to apply for unemployment insurance more quickly. The law also provides more money to states to fund their UI programs.
*This is not intended as legal advice; for more information, please consult with your accountant or an accounting professional"