As most of you are aware, the president signed into law the Cares Act on March 28th. Below is a summary of the items included in the legislations that apply to smaller businesses.We urge you to look at these provisions, especially the payroll protection program loan and SBA EIDL loans. We think all of our clients should consider these loans if you have employees and if you have possible need for a cash injection due to the economic turmoil produced by this virus. We have a list of documents that you will need for these loans. As we mentioned in our prior email, keeping records of your expenses, as well as having current financial statements will help you in the loan process.Please contact us for further details on any of this information. More legislation is expected so we will continue to update you as we have more information. You can also see the corona virus section of our website for this & other related information.
Terri Davis CPA & Denton Connor CPA
Small business interruption loans – for businesses with less than 500 employees SBA 7(a) Paycheck Protection Program Loan. The loan amount is determined using Average eligible monthly payroll costs, excluding compensation above $100,000 in wages (based on prior 12 months) multiplied by 2.5 (represents months) – plus – the balance of any SBA Loan closed between 1/31/2020 and when this loan will be made, if applicable – OR – $10 million whichever is less. Allowable uses of the loan include eligible payroll support (eligible employee salaries which excludes compensation above $100,000 in wages, paid sick or medical leave, insurance premiums), interest paid on a mortgage (excludes any prepayment of or payment of principal) or rent, and utility payments.
These are 10 year loans, unsecured with no personal guarantees necessary. These loans are also forgivable if you qualify. The borrower is eligible for loan forgiveness equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on eligible payroll costs, interest payments on any mortgage incurred prior to February 15, 2020 (excludes principal and prepayments), payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. Amounts forgiven may not exceed the principal amount of the loan. The forgiveness will be reduced proportionally by any reduction in employees retained compared to the prior year.
Economic Injury Disaster Loan Program (EIDL) – the SBA’s EIDL loan has been enhanced to provide low interest loans for working capital to both small businesses and non-profits suffering economic injury due to the Coronavirus. In addition, the Act created a new Emergency Grant for businesses that have applied for a disaster loan to receive an immediate advance up to $10,000 while they wait for approval. The grant is not required to be repaid even if the loan request is denied.
Payroll tax credits –This provision provides a refundable payroll tax credit for 50% of wages paid by eligible employers to certain employees during the COVID-19 crisis. (Act Sec. 2301(a))
Eligible employers. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel, or group meetings. The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured on a year-over-year basis. (Act Sec. 2301(c)(2))
Payroll Tax payment deferrals –The CARES Act allows taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020. Thus, notwithstanding any other provision of law, the payment for “applicable employment taxes” for the “payroll tax deferral period” won’t be due before the “applicable date.” (Act Sec. 2302(a)(1))
Corporate tax payments, other tax payments delays – 2019 income tax payments have been delayed until July 15, 2020.
NOL carrybacks –The CARES Act temporarily removes the taxable income limitation to allow an NOL to fully offset income. The CARES Act provides that NOLs arising in a tax year beginning after Dec. 31, 2018 and before Jan. 1, 2021 can be carried back to each of the five tax years preceding the tax year of such loss. (Code Sec. 172(b)(1) as amended by Act Sec. 2303(b)(1))
Corporate minimum tax credit – The CARES Act allows 100% minimum tax credit for tax years beginning in 2019 (Code Sec. 53(e)(1), as amended by Act Sec. 2305(a), and Code Sec. 53(e)(2), as amended by Act Sec. 2305(a))
Increased interest expense deduction –The CARES Act temporarily and retroactively increases the limitation on the deductibility of interest expense under Code Sec. 163(j)(1) from 30% to 50% for tax years beginning in 2019 and 2020. (Code Sec. 163(j)(10)(A)(i) as amended by Act Sec. 2306(a))
Bonus depreciation for 15 year property – The CARES Act provides a technical correction to the TCJA, and specifically designates QI Property as 15-year property for depreciation purposes. (Code Sec. 168(e)(3)(E)(vii), as amended by Act Sec. 2307(a)(1)(A)) This makes QI Property a category eligible for 100% Bonus Depreciation. QI property also is specifically assigned a 20-year class life for the Alternative Depreciation System. (Code Sec. 168(g)(3)(B), as amended by Act Sec. 2307(a)(3)(B))
AS a reminder the Families First Coronavirus Response Act (FFCRA) set out new rules that apply from April 1, 2020 – December 31, 2020 for employers with less than 500 employees:
Employee Paid Sick Leave and Expanded Family Medical Leave
Under the Act, employees can receive up to 80 hours of paid sick leave at 100% of their pay when the employee is unable to work because the employee is quarantined or experiencing COVID-19 symptoms. An employee can receive paid sick leave at 2/3 of their pay if they must care for another individual subject to quarantine or to care for a child whose school is closed, or childcare provider is unavailable due to COVID-19. Please note that the definition of quarantine does not include shelter-in-place.
US Dept. of Labor Q and A: https://www.dol.gov/agencies/whd/pandemic/ffcra-questions
Employer Credit for Paid Sick and Family Leave
Employers may claim a refundable credit for the reimbursement of 100% of the amount paid as sick leave or family leave to their employees. The credit is applied against the employer’s portion of federal payroll taxes. Only wages paid between April 1, 2020 and
December 31, 2020 can be considered for the credit. Self-employed individuals are also eligible for this credit.