As part of our series of spreading knowledge and helping businesses out there during this COVID-19 crisis, we have gathered information from the CARES Act. This bill was passed on Friday, March 27. Below are some of the most important benefits we feel businesses can take advantage of.
Our firm is assisting with SBA loans mentioned below therefore please let us know to discuss further.
On a side note for businesses located in NYC, the city’s small business service is offering a 40% payroll grant and a no interest $75K loan for businesses. You can find out more information on their official website here.
This blog post will answer the question: What benefits are there for small businesses in the CARES Act?
1. Economic Injury Disaster Loan (EIDL) Expanded and Improved: The EIDL loan offered directly by the SBA (Treasury Department) has been there since the start of of COVID-19 crisis but the CARES Act has made it significantly easier for more businesses to get it. Business can get working capital to pay bills and operating expense up to $2 million of financial assistance with interest up to 3.75%. The bill makes the following changes: Business can get $10K emergency advance if not approved for the loan. Additionally this $10K will not have to be paid back if used for paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue losses. A few others improvements: EIDLs that are smaller than $200,000 can be approved without a personal guarantee, EIDLs can be approved by the SBA based solely on an applicant’s credit score. This loan available to Sole Proprietors, Self Employed and Independent Contractors.
2. Paycheck Protection Loan Forgiveness Program: One of the largest sections of the CARES Act is the most important provision for most small businesses. The Paycheck Protection Program creates a type of emergency loan that can be forgiven when used to maintain payroll through June. The basic purpose is to incentivize small businesses to not lay off workers and to rehire laid-off workers that lost jobs due to COVID-19 disruptions. The amount of the loan is 2.5x your 2019 average payroll. You will not have to pay this loan back as long as employers continue paying employees at normal levels during the eight weeks following the origination of the loan, then the amount they spent on payroll costs (excluding costs for any compensation above $100,000 annually), mortgage interest, rent payments and utility payments can be combined and that portion of the loan will be forgiven.
3. 100% Refundable Tax Credit for Paid, Sick and Family Leave: Employers who pay their employees for leave due to being quarantined because of COVID-19, to take care of a loved one who is affected, or to take care of child due to school being closed, will be reimbursed by the IRS for 2 weeks of pay as a refundable payroll tax credit. The payroll tax credit has some limitations on the amount and varies slightly based on the reason of leave.
4. Net Operating Loss Carryback: Businesses that have net operating losses (NOLs) have some limitations removed. If your business had an NOL in a tax year beginning in 2018, 2019, or 2020, that NOL can be now be carried back five years instead. This may improve cash flow and liquidity for some businesses. Pass-through businesses and sole proprietors will also be able to take advantage of the relaxed NOL limitations.
5. Higher Business Interest Deduction: For 2019 and 2020, the amount of interest expense businesses are allowed to deduct on their tax returns is increased to 50% from 30% of taxable income.
6. Defer Payroll Taxes: Businesses and self-employed individuals can delay their payroll tax payments. The employer share of Social Security tax owed for 2020 can instead be deferred and paid over the next two years. However, fifty percent must be paid by the end of 2021 and 50% must be paid by the end of 2022. (Exception: The ability to defer these taxes does not apply to a business that has a Paycheck Protection loan forgiven.)
Please let us know about if you have any further questions or need further clarification. We are here for you during this difficult time, reach out anytime via email and we’ll be happy to get back to you.