Three major pieces of legislation have been signed into law creating several relief programs. The following is a brief summary of some of these programs (the links provide sources of additional information). You can expect changes and clarifications, but due to funding caps and the number of businesses expected to apply for assistance, it is important to determine the course of action which best suits your organization.
According to the Journal of Accountancy as of April 16, the Paycheck Protection Program quickly exhausted the $349 billion in initial funding:
SBA has approved more than 1.6 million loans submitted by nearly 5,000 lenders. That has accounted for more than 14 years’ worth of loans in less than 14 days, according to a joint statement issued Wednesday night by Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza. Mnuchin and Carranza also urged Congress to approve $250 billion in additional funding.
These programs aim to encourage employers to retain employees through a combination of: loans or credits towards payroll taxes for businesses which retain employees; payroll tax credits to cover the cost of providing coronavirus-related leave; and delayed payment of the employer-portion of payroll taxes.
Participation in some of these programs exclude one from participation in another, so they should be carefully analyzed.
SBA Paycheck Protection Program Loans
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The Paycheck Protection Program will be available through June 30, 2020.
Small businesses and sole proprietorships affected by the coronavirus pandemic can apply for loans under the federal Paycheck Protection Program beginning Friday, April 3. Starting April 10, independent contractors and self-employed individuals can apply.
Loan forgiveness is based on the employer’s maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease. You can apply through any existing SBA 7(a) lender, and the SBA is advising businesses to contact their local bankers.
The National Council of Nonprofits has a chart describing the different loan programs under the CARES Act.
Businesses participating in Paycheck Protection Program Loans may not receive the Employee Retention Payroll Tax Credit described below.
Employee Retention Payroll Tax Credit
A refundable tax credit has been created to assist employers in retaining employees. The credit is computed at 50% of qualified wages paid by eligible employers for up to $10,000 paid to each employee between March 13, 2020 and Dec. 31, 2020.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
Eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns beginning with the second quarter. If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Qualifying employers must fall into one of two categories:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019. Once the employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter.
These measures are calculated each calendar quarter.
Eligible Employers who paid qualified wages between March 13, 2020 and March 31, 2020, inclusive, will report 50% of those wages together with 50% of any qualified wages paid during April, May, and June 2020 on their 2nd quarter Form 941, Employers Quarterly Federal Tax Return, to claim the employee retention credit. Employers should not include the credit on their 1st quarter Form 941.
An eligible employer may not receive the Employee Retention Credit if the employer receives a Small Business Interruption Loan under the Paycheck Protection Program described above.
Coronavirus paid sick leave and family leave
Eligible small and midsize employers can claim refundable payroll tax credits, designed to reimburse them, dollar for dollar, for the cost of providing coronavirus-related leave to their employees.
The Department of Labor has issued this FAQ to address questions about the program.
Delayed payment of employer portion of payroll taxes
Employers (including self-employed individuals) will be able to postpone payment of 50% of 2020 employer-portion of payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022.
Also see this recently issued COVID-19-Related Tax Credits for Required Paid Leave.
The question naturally arises as to what, if any losses insurance policies will cover. As this is a highly complex matter that is likely to be litigated, no general predictions can be made.
IRS Scam Warnings
People are urged to take extra care during this period. “The IRS isn’t going to call you asking to verify or provide your financial information so you can get an economic impact payment or your refund faster. That also applies to surprise emails that appear to be coming from the IRS. Remember, don’t open them or click on attachments or links. Go to IRS.gov for the most up-to-date information.”
Information from various agencies can be found at these links:
Families First Coronavirus Response Act Poster
Internal Revenue Service
Franchise Tax Board
California Office of Business and Economic Development
National Council of Nonprofits
State of California
90-Day Mortgage Payment Relief
Eviction Protection for Renters
California Association of Nonprofits
Wagner Kirkman Blaine Klomparens & Youmans LLP covid-19 resources
U.S. Chamber of Commerce
Candid – Listing of Funds for Coronavirus Relief