Relief for Small Businesses during COVID-19
Various governmental organizations are implementing programs to provide relief for small business during this pandemic.
IRS Relief: FFCRA
The IRS has announced their plan to implement paid leave for workers, as well as tax credits for small and midsized businesses so that they may recover the cost of paying for Coronavirus-related leave. Small and midsized business can take advantage of two refundable payroll tax credits, which would reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. This relief is provided under the FFCRA; for more details on this act please follow the link to the article on our website. Basically, the legislation allows employers to keep their employees on payroll without forcing them to choose between paychecks or public health.
IRS Relief: Key Takeaways
Employees are offered paid sick leave for up to eighty hours as well as expanded paid childcare leave when employee’s children’s schools and daycare are closed. Pursuant to the Act, employers receive 100% reimbursement for paying for said leave. Also included in the credit are health insurance costs, zero payroll tax liability, and an equivalent credit for self-employed individuals. The reimbursement is immediate, and the IRS will process refunds (when owed) as quickly as possible. This is done by allowing businesses to retain and access funds that they would otherwise pay to the IRS in payroll taxes. If these amounts don’t sufficiently cover the cost, the employer can request an expedited advance from the IRS by submitting a streamlined claim form.
Employers who have fewer than fifty employees are exempt from the requirements to provide paid leave for employees whose children’s schools and daycare are closed. There is a thirty-day non-enforcement period for these requirements wherein employers are supposed to demonstrate good faith compliance efforts.
IRS Relief: Employee Retention Credit
The CARES Act was implemented to help eligible employers keep their employees on payroll. This is done through the Employee Retention Credit. The Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages considered with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.
Eligible employers are those that carry on a trade or business during calendar year 2020, including a tax-exempt organization, that either:
Fully or partially suspends operation during any calendar quarter in 2020 due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings (for commercial, social, religious, or other purposes) due to COVID-19; or
Experiences a significant decline in gross receipts during the calendar quarter.
Note: Governmental employers are not Eligible Employers for the Employee Retention Credit. Also, Self-employed individuals are not eligible for this credit for their self-employment services or earnings.
U.S. Small Business Administration Relief: Paycheck Protection Program (PPP)
This program is a loan designed to incentivize small businesses to keep their workers on payroll. The major benefit of this loan is that SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. The Program is available through June 30, 2020.
Businesses with fewer than 500 employees can apply, (including sole proprietorships, independent contractors and self-employed persons). Businesses with more than 500 employees can also apply if they meet the SBA’s size standards for that business’s industry. Small businesses in the hospital and food industry could have each store location they manage (that has less than 500 employees) be eligible.
Small businesses can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Lenders will begin processing loans on April 3, 2020.
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. This loan has a maturity of 2 years and an interest rate of .5%.
U.S. Small Business Administration Relief: Economic Injury Disaster Loans and Loan Advance
Small business owners in all states are eligible to apply for this Loan advance of up to $10,000. The program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
U.S. Small Business Administration Relief: SBA Debt Relief
The SBA Debt Relief program will provide a reprieve to small businesses as they overcome the challenges created by this health crisis. The SBA will pay the principal and interest of new 7(a) loans issued prior to September 27, 2020. The SBA will also pay the principal and interest of current 7(a) loans for a period of six months.
U.S. Small Business Administration Relief: SBA Express Bridge Loans
This Program allows small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 with less paperwork. These loans can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing and can be a term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan. If a small business has an urgent need for cash while waiting for decision and disbursement on Economic Injury Disaster Loan, they may qualify for an SBA Express Disaster Bridge Loan. The loan is up to $25,000, has a fast turnaround, and will be repaid in full or in part by proceeds from the EIDL loan.