Following the passage of the Coronavirus Aid, Relief and Economic Security Act (CARES) and President Trump signing it into law, ABC has gathered some additional information on the bill’s small business and tax provisions.
ABC also encourages its members to consult with their tax accountants on these provisions to see what best fits their business needs.
Paycheck Protection Program Overview
The bill authorizes $2 trillion in federal funding for programs to support our nation’s hospitals and businesses, and the most critical of these programs for ABC members (a majority of which are small businesses) is the Paycheck Protection Program that authorizes $349 billion in forgivable loans from the Small Business Administration. PPP loans must be made during the period prior to June 30, 2020.
The bill defines eligibility for these loans as a small business, 501(c)(3) nonprofit, a 501(c)(19) veteran’s organization, or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees, or the applicable size standard for the industry as provided by SBA, if higher. It also includes sole-proprietors, independent contractors and other self-employed individuals as eligible for loans and allows businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries, mainly franchise and food services, to be eligible.
The bill requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that they will use the funds to retain workers and maintain payroll, lease and utility payments; and are not receiving duplicative funds for the same uses from another SBA program.
PPP Loans
PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, however, the maximum loan amount under this program is $10 million through Dec. 31, 2020. It also specifies allowable uses of the loan to include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums and mortgage, rent, and utility payments.
PPP loans are made by SBA-certified lenders (over 800 financial institutions currently) in all 50 states through delegated authority from the SBA. In addition, the SBA Administrator and Secretary of Treasury may further authorize additional lenders to join the program, as needed. SBA-certified lenders simply need to verify that a small business was in operation on Feb. 15, 2020 and paid employee salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC, for eligibility in the PPP.
The SBA is required to issue regulations on the application process within 15 days after the enactment of the CARES Act, and ABC will be sure to provide updates on any agency guidance that comes out.
To prevent double dipping into these relief efforts, if a business receives a loan through the PPP it cant then use the retention tax credit and can’t defer payroll tax if/when the loan is forgiven.
Individual businesses should consult with their tax accountants and weigh the benefits of these individual provisions and see what works best for them.
Loan Forgiveness
Principal amounts on PPP loans, for the first eight-week period from when the PPP loan is made, may be forgiven if loan funds are used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities.
The amount of a PPP loan that may be forgiven cannot exceed the principal amount of the loan. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
Tax Provisions
Other critical provisions in the bill include tax provisions that will help businesses maintain liquidity through this national crisis.
- Retention tax credit. Creates a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis.
- Qualifying employers are those whose (1) operations were fully or partially suspended due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year.
- For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above.
- For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shutdown order.
- The credit is capped at $10,000/quarter per employee, including health benefits paid.
- The credit is provided for wages paid or incurred from March 13, 2020, through Dec. 31, 2020.
- Delay of payment of employer payroll taxes. Payment would be due over the course of two years with half due Dec. 31, 2021 and the balance due Dec. 31, 2022.
- Modification for net operating losses (NOL). This provision would allow five-year carryback for 2018, 2019 and 2020 tax years, respectively.
- Modification of limitation on losses for taxpayers other than corporations. The 80% carryback limitation would be lifted for pass-through entities to harmonize with corporate NOL treatment for 2018, 2019 and 2020.
- Modification of credit for prior-year minimum tax liability of corporations. This would accelerate the ability of companies to recover AMT credits in the form of refunds.
- Modification of limitation on business interest. This would loosen the limitation on interest deduction to 50% of EBITDA for 2019 and 2020.
- Technical amendments regarding qualified improvement property (QIP). This fix to the so-called “retail glitch” would unlock $15 billion in liquidity for QIP expenses incurred by hard-hit sectors like restaurants, hotels and retail, among others.
Families First Coronavirus Response Act—DOL Resources
On March 26, the U.S. Department of Labor issued additional guidance explaining paid sick leave and expanded family and medical leave under the Families First Coronavirus Response Act:
Read more on the ABC Coronavirus Update webpage: abc.org/coronavirus.
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