Author: Tony Mira
CARES Act – Coronavirus Aid, Relief and Economic Security Act
Payroll Protection Plan
- Businesses with fewer than 500 employees that have been substantially affected by COVID-19 are eligible for a forgivable loan subject to certain conditions. This loan has a maximum maturity of 10 years and is limited to the lesser of $10 million or 2.5 multiplied by the average total monthly payments by the applicant. The loan proceeds should be used to meet payroll support (up to $100,000 annual salary), employee salaries, mortgage payments, rent, utilities and other debt obligations. The salary limit is a ceiling of $100,000 and does not disqualify employees with salaries in excess. The loan is forgivable to the extent of maintaining payroll continuity and other allowable costs for the 8 weeks from loan origination. This interruption loan is not eligible to be used in conjunction with the Payroll Tax Deferral or the Employee Retention Credit.
- The application process period is open from April 3, 2020 until June 30, 2020. To expedite process, businesses should work with a bank that can verify qualifications to support and meet requirements set by the SBA. For purposes of this provision, it will include a bank that already has your financial information including financial statements, current lending agreements, etc. As the forms and application links are in process, please work with your banker to obtain the above.
Economic Injury Disaster Loans– Issued by SBA
- The SBA is issuing low-interest loans to small businesses, who have been impacted by COVID-19. These loans are to be used to pay fixed debts, payroll, accounts payable, and other expenses that could have been met if not for the COVID-19 impact. The loans are eligible for repayment terms up to 30 years. These costs cannot be duplicated under different relief programs. Disaster relief can be accessed at the following SBA link: https://covid19relief.sba.gov/#/
“Main Street” Business Lending
- A business lending program for mid-sized business has been appropriated, but not yet funded. This has been created to address the need of those businesses who are ineligible for small business programs, yet do not have the access to capital markets.
- Program designed for employers with 500-10,000 employees not eligible for SBA loans.
- On March 23rd Treasury Secretary Steven Mnuchin announced “Main Street” Business Lending as a vehicle for much needed capital for mid-sized businesses who are not eligible to use the SBA loans, or large enough to avail themselves a direct loan from the federal government (Boeing, Airlines).
Oversight Message to Banks
- The federal government including the Federal Reserve, FDIC, et al. issued the “Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus” on March 22, 2020. These federal organizations are encouraging financial institutions to work with borrowers affected by COVID-19. Loan modification programs can help to mitigate the COVID-19 effects to borrowers. Consideration should be given on the effect of existing lines before entering into these programs.
Business Tax Relief
Payroll Tax Deferral
- Employer portion of payroll taxes due to the IRS through the end of 2020 can be deferred for 2 years. 50% are due by December 31, 2021 and the remainder is due December 31, 2022. Taxpayers that receive the SBA interruption loans are not eligible for this deferral.
Employee Retention Credit
- Employers may receive a payroll tax credit for 50% of eligible wages (up to $10,000 per employee) paid to employees during COVID-19. This credit is for businesses that are subject to COVID-19 shut-down orders or whose gross receipts declined by more than 50% when compared to same quarter in prior year. Employers that receive the SBA interruption loans are not eligible for the retention credit.
Net Operating Loss (NOL) Carryback
- NOLs for tax years 2018 to 2020 are eligible to be carried back for five years. These NOLs can be used to offset income that was taxed at higher tax rates in place prior to the Tax Cuts and Jobs Act (TCJA).
- Previously unused AMT credits are eligible to be fully claimed during tax years 2018 and 2019.
- The 163(j) interest limitation is increased to 50% from the previous 30% limitation. This is in effect for the 2019 and 2020 tax years.
* Information in this “At A Glance” is provided for informational purposes only. Please consult with your legal, finance, accounting, or other business providers when making any decisions relating to the above information.