Please click here to download our CARES ACT – BUSINESS guide.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a massive bill designed to provide assistance to individuals and businesses affected by COVID-19. Here’s a break-down of the major provision that will affect you as a business owner.
$349 billion will be distributed to support forgivable loans through a new Paycheck Protection Program. This money is designated for the following businesses:
- Small employers with 500 employees or fewer, as well as those that meet the current Small Business Administration (SBA) size standards.
- Self-employed individuals and “gig economy” individuals.
- Certain nonprofits, including 501(c)(3) organizations.
- 501(c)(19) veteran organizations.
- Tribal business concerns with under 500 employees.
The size of the loans would equal 250% of an employer’s average monthly payroll. The maximum loan amount would be $10 million. The loans may be used for covered payroll costs; payments of interest on mortgage obligations; rent/lease agreements; utilities; and interest on any other debt obligations incurred before the covered period. Covered payroll costs include the following:
- Salary, wages, and payment of cash tips (up to an annual rate of pay of $100,000).
- Employee group health care benefits, including insurance premiums.
- Retirement contributions.
- Covered leave.
In addition to the loans and grants available, there are significant tax provisions to help employers.
Payroll Tax: Employer can receive a refundable payroll tax credit for 50% of the first $10,000 of wages per employee paid to employees during the COVID-19 crisis. The credit is available to employers who fall into either of these categories:
- Your operations were fully or partially suspended, due to a COVID-19 related shut-down order, or
- Your gross receipts declined by more than 50% when compared to the same quarter in the prior year.
The credit is effective for wages paid after 3/12/20, and before 1/1/21.
Social Security Tax: Employers and self-employed individuals can defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. The deferred amounts would be payable over the next two years – half due 12/31/21 and half due 12/31/22
Net operating losses (NOL): Limitations on a company’s use of losses are relaxed. The provision provides that an NOL arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years. It also temporarily removes the taxable income limitation to allow an NOL to fully offset income.
Accelerated AMT: The ability of companies to recover Alternative Minimum Tax (AMT) credits will be faster, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency. The corporate AMT was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021.
Business Interest Expense: This provisiontemporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns. It increases the 30% limitation to 50% of adjusted taxable income, with adjustments, for 2019 and 2020.
Write-Offs: Businesses, especially in the hospitality industry, are able to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.