Over the last week or so, there have been several bills passed by Congress and signed into law. The largest one signed on Friday March 27, 2020 is called the CARES Act. It has many provisions designed to help support individuals, small businesses and nonprofits in these very difficult times. We are studying this legislation as we continue completing tax returns in this busy time of year.
Part of the CARES Act provides direct financial assistance to small businesses and nonprofits, to help ease cash flow difficulties while commerce is fully or partially suspended to slow the spread of the corona virus. The goal is to help employers retain their basic operating capacity so that when the spread of the coronavirus is sufficiently reduced, businesses will be more quickly able to return to normal.
There are a few provisions that we want to explain immediately for our small business and nonprofit clients because the relief they offer could impact business decisions, staffing choices, and help support your cash flow in these uncertain times.
Payroll Protection Act Loans
A $350 billion fund, to be administered by the Small Business Administration (SBA), has been set up to keep people employed. This fund will make forgivable loans to small businesses and nonprofits through SBA approved banks. To participate in this program, contact your banker to ask if your bank can help you with these loans. The loans are based on 2.5 times your average monthly payroll costs and are forgivable based on continuing to pay your employees, rent, and utilities over the eight week period following receipt of the loan proceeds. There are many more nuances to this program as well.
Federal Employee Retention Credit
For employers whose operations have been fully or partially suspended as a result of a government order limiting commerce, a new refundable payroll tax credit is available. The maximum available credit is $5,000 per employee (50% of $10k in wages per employee) and you earn it in 2020 by continuing to pay your employees.
FMLA (Family Medical Leave Act) expansion to cover COVID-19
Nearly all employers now must provide paid time off (PTO) for employees who have contracted COVID-19, have a family member who has, or has a child whose school has been closed. When employees use this PTO, the employer can receive a refundable payroll tax credit for 50% of PTO wages paid up to $511/day.
Payroll tax deferral
The employer’s portion of Social Security tax, incurred between mid-March 2020 and the end of 2020, may be deferred. Half of the liability must be paid by 12/31/2021 and the remaining half must be paid by 12/31/2022. Providing employers with additional time to pay a portion of their 2020 payroll tax expense is basically an interest free loan to all employers during 2020. It will be important to track the liability and plan your cash flow carefully so that the payment deadlines can be met.
April 15th due dates pushed out to July 15th
Tax payments normally due by April 15, 2020 are now not due until July 15, 2020. This 3-month grace period also applies to funding your 2019 IRA, Roth IRA and Health Savings Account (HSA).
What are your next steps?
Let us know you would like our help with these relief provisions and we can figure out a way to connect with you to work through your specific situation. We are still learning about all the rules included in the recent legislation and are contacting bankers we know. Ideally, we can target April 1 and thereafter for a follow-up with you.