The novel coronavirus has spread around the world disrupting almost every business. Many businesses have been hard hit, especially small and medium businesses, which have been forced to lay off employees, send employees on unpaid leave, or adapt and attempt to work from home when possible. To combat this terrible economic decline, the federal government has passed a $2 trillion dollar spending bill meant to assist and support business in these rough times and reduce unemployment. It is by far the largest stimulus bill the government has ever passed to date, and comes with a wide variety of benefits and incentives for businesses of all sizes, including corporations, partnerships, LLCs, self-employed individuals and freelancers.
We would like to set-forth below a summary of the main benefits and opportunities that the stimulus bill can offer to your business, including high beneficial loans, deferred tax payments, tax credits, tax deductions and extension of tax filings.
Paycheck Protection Program - Highly Beneficial Business Loans
The government has made it possible for businesses with less than 500 employees (small and medium businesses) to receive highly advantageous business loans through the Paycheck Protection Program. The loan is meant to help businesses keep their employees on payroll, pay for rent / mortgage payments and utilities.
The application process is free and it is open to businesses which started their activity on or before February 15, 2020. Not only companies can apply for the loan, but also sole proprietorships,self-employed individuals, freelancers and other independent contractors.
The loan will be granted and administered by banks and other lenders (and not directly by the government), and does not require any personal guarantee of repayment or collateral to secure the loan. Businesses will however be required to demonstrate a decent credit score and to prove that the business has been affected by COVID-19.
Businesses can generally get the lesser of (i) $10 million; and (ii) 2.5 times the average monthly expenses, such as payroll, rent / mortgage expenses and utilities. Under some conditions, the loan's principal could be forgiven, essentially turning the loan (or a portion of it) into a tax free grant. The portion of the loan which is not forgiven would be a long-term loan for a maximum term of 10 years, with a maximum interest rate of 4%. The borrower will be able to defer the first repayment on the loan for 6-12 months.
SBA Disaster Loan Program
The Small Business Administration (SBA) was established to help small businesses. The SBA offers loans and other benefits to small businesses which do not have access to any other lines of credit. If the business already has a loan elsewhere, or would be eligible for a loan elsewhere, it won't be eligible for the SBA loan. Another condition for receiving the loan is that the business needs to be located in a state which the SBA recognizes as being affected by the coronavirus such as California, Florida, New Jersey and New York.
Under the stimulus bill, businesses could be eligible for a loan up to $2 million with interest rate of 3.75% for for-profit organizations and 2.75% for non-profit organizations.
Unlike the Paycheck Protection Program, the SBA can request the business to provide a personal guarantee and/or collateral to secure a loan of more than $25,000. Under $25,000 they cannot require collateral, but offering it would probably increase the chances of approval for the loan.
Social Security Payroll Tax Deferral
The stimulus bill offers businesses the opportunity to defer payment of the employer's share of social security taxes. According to the stimulus bill, 50% of the deferred taxes should be paid by December 31, 2021 and the other 50% by December 31, 2022. The employer should still collect and remit the employees' share of social security taxes.
This benefit is also applicable to self-employed individuals. In the case of self-employed individuals, the equivalent amount of deferred tax would be 50% of the Social Security component of the self-employment taxes.
Family and Medical Leave Act Benefits
As an employer, pursuant to the Family and Medical Leave Act (FMLA) the federal government requires you to pay 100% of a sick or self-quarantined employee's salary for up to 2 weeks. To help employers in this situation, the employers will receive a payroll tax credit for the paid leave of the employee of up to $511 per day for up to 10 days. The tax credit can be claimed quarterly.
Employees caring for others impacted by COVID-19 , can be paid 75% of their regular salary for up to 2 weeks. In this case, the employer will be entitled to receive a $200 per day payroll tax credit for up to 10 days.
Under certain conditions, if a self-employed individual is out of work for 10 days or less due to a coronavirus (illness or self-quarantined), the self-employed individual will be entitled to a tax credit in the amount which is the lesser of the average daily income of the self-employed individual and an amount of $511, per day for up to 10 days. If the self-employed individual was out of work caring for another person, the self-employed individual can claim a tax credit of the lesser of 67% of the average daily income and $200 per day, for up to 10 days.
Qualified Improvement Property
The Tax Cuts and Jobs Act (TCJA) was supposed to give retailers, restaurants and hotels the ability to immediately claim a tax deduction for property improvements. However, due to a wording snafu, the deduction was not available to them. The stimulus bill fixed this exclusion, and allows retailers, restaurants and hotels to deduct property improvements starting from 2018. These businesses will be able to file amended tax returns for 2018 (and for 2019 if already filed) and get a tax refund. This deduction will be allowed going forward for property acquired before January 1, 2023.
Tax Filing and Payment Extension
The good news for most businesses is that they received an automatic extension for filing their federal income tax returns and the payment of their federal income and self-employment tax for 2019. The filing and tax payment deadline of April 15, 2020 was extended to July 15, 2020. The extension also applies to the first quarter estimated tax payment, which is now also due on July 15, 2020. However, taxpayers should note that the second quarter estimated tax payment is still due on June 15.
Taxpayers can still file an extension for filing their income tax returns until October 15. However, in this case their federal income and self-employment tax payment would still be due by July 15.
Most states, with the exception of New Jersey, have extended or declared they have extended the filing deadline to July 15 as well (with the exception of Virginia which has extended the filing deadline to May 1).
We understand the many difficulties businesses are facing in these unusual and trying times. Thankfully, due to the CARES Act, U.S. businesses have more opportunities now than ever before to access much needed capital, cash flow and assistance, such as access to highly beneficial loans and government grants and various tax benefits.
In order to qualify for these plans, businesses are required to share financial information with the plan administrator to substantiate their eligibility. Finaloop is here to help you align and close your books and make the necessary information readily available, so you can access any benefits you are eligible for. We are also here if you have any questions regarding the upcoming tax filings and payments schedule.