COVID-19 Relief Measures for Small Businesses
For the past few months, we have been navigating unchartered territory in our personal and professional lives as we deal with COVID-19 and its impact.
While minimizing the number of infections is necessarily the first priority of governments, local and statewide restrictions have kept millions of people confined to their homes, causing businesses to shutter across the country. Small businesses have been acutely damaged, and unlike other economic downturns in the past, are very quickly feeling the financial pain.
Federal and state governments have rushed in to provide the much needed financial relief. Below are some of the programs specifically created to help small business owners (less than 500 employees) in all U.S. states and territories ride out this storm.
Economic Injury Disaster Loan (EIDL): Under EIDL, U.S. Small Business Administration (SBA) offers loans of up to $2 million to meet financial obligations that are effected by the virus.
- These loans may be used to pay fixed debts, payroll, accounts payable, and other bills that cannot be paid because of the disaster’s impact.
- The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible for this loan.
- The interest rate for non-profits is 2.75%.
- The loans will not exceed 30 years and the repayment is determined on the borrower’s ability to pay back the loan.
- Businesses may be also eligible to receive an advance grant of up to $10,000 within three days of an application for an EIDL loan, and this grant is not required to be paid back even if the application is denied.
The deadline to apply is December 18, 2020.
Paycheck Protection Program (PPP) Loan: This is a partially forgivable, low-interest loan that is intended to help small businesses with 500 employees or less keep their workforce employed during the COVID-19 crisis.
- Businesses may only use this loan to pay pay- roll costs, mortgage, interest, rent payments, and utility costs.
- The maximum loan amount available is 2.5 times the businesses’ average monthly payroll costs (up to $10 million but excluding employee compensation of $100K or more annually).
- The loan interest rate is 1% for a term of 2 years (payments of principal and interest are deferred for 6 months).
- The loan amount received may be forgiven if it is used to cover payroll, mortgage interest, rent payments, and utility costs for an 8-week period after obtaining the loan AND there is no more than a 25% reduction in the payroll due to layoffs or changes in pay.
- Hotel, food services, or approved franchises may be eligible if there are no more than 500 employees per physical location.
Online applications are available through June 30, 2020 if you are a small business or sole proprietorship. Self-employed individuals or independent contractors can start to apply on April 10, 2020. You can apply with any local, state or federal SBA-approved lender. For a list of SBA lenders, visit www.sba.gov.
Payroll Tax Credits
Families First Coronavirus Response Act was signed into law on March 18, 2020. It provides increased funding for small businesses which are now required to provide paid sick and family leave under various new programs. The Act created new tax credits to offset the cost of these programs and also to provide relief for eligible employers in response to the COVID-19 crisis.
Eligible employers, for purposes of Required Paid Sick Leave and/or Required Paid Family Leave, are small to mid-size businesses with fewer than 500 employees that are required to provide employees with paid leave either for the employee’s own health need or forced quarantine (Sick Leave) or for the employee to take care of their children (Family Leave) due to COVID-19 related reasons. Employers will be able to claim the Required Paid Sick Leave and/or Paid Family Leave Credits against their payroll tax liability for applicable paid leave during the period beginning April 1, 2020 and ending December 31, 2020. For self-employed persons, these credits may be allowed against regular income taxes. The IRS is expected to provide additional guidance soon.
Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was additionally, signed by the President on March 27, 2020. It includes provision for an eligible employer to claim a refundable payroll tax credit for retaining employees during the COVID-19 crisis. An eligible employer, for purposes of this Employee Retention Credit, is defined as either an employer whose business was fully or partially suspended due to governmental orders, or one who experienced a significant decline in gross receipts. The Employee Retention Credit applies to qualified wages paid to employees during the period beginning March 13, 2020 and ending December 31, 2020.
Credit for Required Paid Sick Leave
Emergency Paid Sick Leave Act provides that employers with fewer than 500 employees must provide paid sick leave to an employee who cannot work or telework because the employee has been:
- quarantined; or
- has been advised to self-quarantine; or
- has coronavirus symptoms and is seeking medical diagnosis; or
- is caring for someone with coronavirus or for a child whose school or care facility is closed or whose care provider is unavailable.
Qualifying Paid Sick leave for claiming the credit is based on a per-day amount for each employee.
The credit limit per employee is $511 per day (up to $5,110) if for reasons and concerns related to COVID-19:
- the employee is subject to a federal, state, or local quarantine or isolation order; or
- the employee has been advised by a health care provider to self-quarantine; or
- the employee is experiencing symptoms of COVID-19 and seeking a medical diagnosis.
The credit limit per employee is $200 per day (up to $2,000) if for reasons and concerns related to COVID-19:
- the employee is caring for an individual as such stated above; or
- the employee is caring for his or her son or daughter if the child’s school or place of care has closed or childcare provider is unavailable; or
- the employee is experiencing other substan- tially similar condition specified by the Secretary of Health and Human Services.
Credit for Required Paid Family Leave
Emergency Family and Medical Leave Expansion Act provides that employers with fewer than 500 employees must provide leave under the Family and Medical Leave Act (FMLA) when there is a qualifying need related to a public health emergency. This applies when an employee cannot work or telework, and instead must care for a son or daughter under age 18, because for reasons and concerns related to COVID-19, either:
- the child’s school or place of care has been closed due to a public health emergency; or
- the child’s care provider is unavailable due to a public health emergency.
The maximum amount of paid leave eligible for credit is limited for each employee to:
- $200 for any day for which the employee is paid qualified family leave; or
- $10,000 in total for all calendar quarters.
For credit for both Required Paid Sick Leave and Family Leave, the credit is claimed on the quarterly form 941, applied against the current quarter’s Social Security and Medicare tax imposed on the employer, reduced by other allowed payroll credits. If the credit amount is more than the imposed tax on the employer, the excess is treated as an overpayment that must be refunded.
If there are insufficient funds to cover the cost of qualified leave, employers can seek an expedited advance from the IRS by submitting a claim form that is expected to be released soon.
An exemption is allowed for small businesses with fewer than 50 employees if the requirements would jeopardize the business’s ability to continue.
Employee Retention Credit
Under the CARES Act, certain employers can claim a refundable credit for each calendar quarter for which the credit is allowed against the employer’s portion of Social Security tax. The credit is limited to 50% of qualified wages paid by the employer. For each employee, an employer can claim a credit of up to $10,000 of qualified wages paid during March 13, 2020 through December 31, 2020. Qualified wages depend on whether the employer has more or less than 100 employees. If the employer has 100 or fewer employees, all employee wages paid during the suspension period or the period of decline in gross receipts qualify for credit, whether the employer is open for business or subject to a shutdown order. If the employer has over 100 employees, a complex calculation is applied. These credits cannot be taken by companies that have taken out the PPP loans.
Deferral of Social Security Taxes
Employers can defer the payment of the employer portion of the Social Security payroll taxes that are required to be withheld from the employee’s wages. The deferral applies to wages withheld from March 27, 2020 to January 1, 2021. The first half of the deferral amount becomes due on December 31, 2021 and the remaining half on December 31, 2022. Companies cannot claim loan forgiveness under the PPP program and utilize this deferral.
Tax Filing Deadline Extended
The federal tax filing deadline has been extended to July 15. Many states have also matched that extension or provided their own new filing dates.
Several states are also stepping up to offer assistance.
Disclaimer: These programs are evolving daily as additional guidance is made available. Please contact your lender or professional advisor for the most up to date information.
Business Insights is hosted by the Law Firm of KPPB Law (www.kppblaw.com).
Sonjui L. Kumar is a founding partner of KPPB Law, practicing in the area of corporate law and governance.
Disclaimer: This article is for general information purposes only, and does not constitute legal, tax, or other professional advice.
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