Dear Clients and Friends,
We sincerely hope you are safe and healthy.
The U.S. Congress and the President of the United States recently enacted CORONAVIRUS AID, RELIEF AND ECONOMIC SECURITY ACT ("CARES Act”) as a part of a $2.2 trillion stimulus package amid the current health emergency of COVID-19.
Some of the most important provisions include:
Small Business Interruption Loans (Paycheck Protection Loan or PPP loans)
Employee Retention Credits
SBA loan relief, that provides a 6-month forbearance of interest and fees to businesses with 500 employees or less and that currently have SBA loans
Credit support for affected businesses, including those that are not qualified for PPP loans
Expansion of unemployment program benefits
Deferred payment of certain federal payroll taxes
Stimulus payments for qualified individuals of $1,200 per qualified person ($2,400 if married) and $500 per child (to be discussed in a separate publication)
This program, administered through SBA, will provide reduced interest bearing loans to small businesses, generally those with 500 employees or less, including for-profit businesses, non-for-profit organizations, and medical practitioner officers. The interest rates are expected to be up to 4% for a period of no more than 10 years, and payment deferments of 6 to 12 months. The maximum loan amount will be 2.5 times the average monthly payroll expenses and up to $10 million, based on the previous calendar year immediately before the loan application.
No origination fees or personal guarantees ("collateral") are required. Instead, employers must certify they intend to use the loan to supplement their day-to-day operations, retain employees, maintain the same payroll levels, and cover certain operational business expenses such as rent, business loan interest, qualified utilities (electricity, water and sewage, gas, transportation and freight, telephone, and internet), and employee salaries and health benefits. It can not be used to cover other benefits related to COVID-19, such as pay leave granted under FFCRA. There should be no pending loan applications for the same purposes, nor have received another loan covering the same period.
One of the main features of this program is the possibility of a debt forgiveness on the portion expended to cover qualified business expenses, as long as the employer maintains its payroll for at least 8 weeks after the loan origination (covered period).
If the employer reduces its workforce or salaries paid to employees by more than 25% during the covered period, the debt forgiveness will be reduced in the same way. This reduction could be avoided by rehiring employees or by reestablishing previous salary amounts. A total loan forgiveness could be granted if by June 30, 2020, the employer rehires laid off employees or employees whose paycheck was cut off from February 15th, 2020.
Employee Retention Tax Credit
This credit is available to employers whose operations were totally or partially suspended as a result of COVID-19, or suffered a reduction of 50% or more on business income compared to the same period during last fiscal year (in this last scenario, employers will be eligible for this benefit until their sales are at least 80% of the earlier for the same month during the previous fiscal year, or December 31, 2020. The maximum benefit is 50% of qualified salaries up to $10,000 salaries paid per employee (up to $5,000 credit per employee), for salaries paid between March 13, 2020 and December 31, 2020 (qualified period). It is not available if the employer applies for PPP loans, credits under FFCRA, or certain other COVID-19 assistance programs. Credits will be recovered through FICA and FUTA taxes. Employers with 100 employees or less can apply for the credit for all qualified salaries paid during the qualified period. Employers with more than 100 employees can only consider salaries or wages paid to an employee not currently working due to total or partial suspension of operations as a result of COVID-19 or a 50% or more business income reduction.
Loans and Assistance Programs for Other than Small Businesses
A $10 billion fund through SBA was enacted to provide Economic Injury Disaster Loans (EIDL). Up to $2 million per qualified business, for a period of 30 years, at an interest rate of 3.75%, with a year payment deferment benefit. While it is not required to provide proof of repayment capacity, these type of loans will be granted based on your business credit score.
Personal guarantee or real estate collateral free loans of less than $200,000 could be approved if certain criteria are met.
A $10,000 Advanced Payment that could be forgiven if expensed on employee paid licenses, to maintain payroll levels, to cover additional expenses to solve issues in supply chain, mortgage payments, leases, and pending obligations due to loss of income. Please note that this Advanced Payment will be available even if the loan application is denied or while pending approval, and it could delay the loan application process.
Direct Lending Loans is discretional in nature for businesses with 500-10,000 employees but with priority for key industries including, but not limited to, airlines with no interest and payment requirement during the first six months. This loan has certain restrictions for executive compensation and stock buybacks, does not allow job outsourcing, or breach of CBA’s or union efforts. Ninety percent of workforce should be retained, with complete payroll, and marginal benefits for employees until September 30, 2020. The business must also restate workforce to 90% of the full payroll and benefits paid as of February 1, 2020 during the term of the loan.
Expanded Unemployment Benefits
CARES Act temporarily increases unemployment benefits to a maximum of $790 per week (current top amount of $190 is increased by $600, $15/hour x 40 hours), and expands the state disbursement period by 13 weeks (current period is 26 weeks). Moreover, this includes self-employed individuals and employees not currently working (totally or partially) due to COVID-19. Not applicable to employees working remotely or receiving other benefits including, but not limited to, paid leave under FFCRA.
Deferred Payment of Certain Payroll Taxes
CARES includes provisions that allow the deferment of 6.2% Social Security Taxes for the payroll paid during periods started March 28, 2020 and ending December 31, 2020. It provides for the payment in two equal (50%) installments that are due on December 31, 2021 and December 31, 2022. This relief is applicable to employers and self-employed individuals. This deferment is not available to employers that will benefit from the loan forgiveness programs previously mentioned in this communication.
Tax Credits Available for Pay Licenses under FFCRA
This act also provides a mechanism to immediately repay employers with the cost of paid leaves under FFCRA through an advanced tax credit. U.S. Form 7200 is already available for these purposes, but it is unclear how these provisions will be implemented. It is expected that the U.S. Secretary of Treasury will issue additional guidance on this matter shortly.
We encourage you to visit our blog and several links mentioned below that are helpful to understand CARES Act provisions.
At Carbonell and Co., LLP, we are committed to provide assistance and guidance to our clients and their families during these crucial and trying times. Should you have any questions or comments, please do not hesitate to contact us.
Stay safe and healthy!