I hope this update finds you, your family, friends, and loved ones healthy + safe. Navigating our new “stay at home” lives has no doubt been a challenge. But hopefully, you’re adapting.
And on the “managing the coronavirus fallout” front, congress officially passed the CARES Act earlier this week. This $2 trillion economic stimulus package runs over 880 pages in length. And it’s positively packed with financial aid and economic relief programs for individuals and businesses.
Obviously, 880 pages a LOT to wade through. So, I’ll cover some of the key highlights. And as always, I’m available to answer additional questions — feel free to get in touch with me here.
In the meantime, let’s dive in!
CARES Act Aid + Benefits for Individuals
Individual taxpayers will receive $1200, plus $500 per child.
- This is applicable to All U.S. residents with an adjusted Gross Income up to $75,000 and $150,000 for married couples (funding amount is reduced by $5 for each $100 in annual income over $75,000 (for single individuals) and $150,000 (for married couples), and phases out at $99k (single) or $198k (married).
- Married couples with two kids will receive $3400 ($1200+$1200+$500+$500)
- -Funding amounts are based on the 2019 tax return. If unavailable, amounts are based 2018. If you have a bank account on file with the IRS, funds will be wired. And if not, a check will be mailed to you.
What do you need to do receive these funds?
- If you filed for 2018 or 2019, nothing. You can expect to receive the funds.
Unemployment Insurance for W-2 works and Self-Employed
- W-2 worker will receive Regular State Unemployment Insurance (typically $400 per week), plus an additional $600.00 a week for 4 months
- Self-Employed individuals may be qualified too – Apply with the State to confirm your qualification
What do you need to do?
- Go to the EDD website and apply for unemployment.
Are You Eligible to Receive Both Stimulus Funds + Unemployment Insurance?
- Yes, you’re eligible to receive both the $1200 stimulus funds and State and Federal Unemployment Insurance
- The 10% Early Distribution Penalty is waived up to $100K from qualified accounts through January 1, 2020 – But ONLY if you test positive for COVID-19, or if you or family member suffer financially due to the impact of the coronavirus pandemic. Additionally, you’re still required to pay the taxes on these funds, spread over a 3-year period following the withdraw.
- The limitation capping charitable donations at 50% of your Gross Adjusted Income has been waived. Thus, for the 2020 tax year, you are allowed to contribute more than 50% of your annual income to charitable institutions.
CARES Acts Aid Benefits for Small Businesses
The Paycheck Protection Program (PPP)
PPP seeks to aid millions of Americans employed by small businesses by putting $349 billion toward job retention and other operational expenses.
Under this program:
- Eligible recipients may qualify for a loan up to $10 million determined by 8 weeks of prior average payroll plus an additional 25% of that amount.
- Loan payments will be deferred for six months.
- you maintain your workforce, SBA will forgive the portion of the loan proceeds that are used to cover the first 8 weeks of payroll and certain other expenses following loan origination.
SBA Loan Advance
Small business owners, self-employed individuals, and independent contractors impacted by the COVID-19 pandemic eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. *Important to note there are limited funds available to fulfill this “advance.”
And funds will be distributed on a First Come First Served basis. Apply immediately if you hope to take advantage.
You can apply online through the SBA’s website. Also, the SBA is continually refining its online loan application process. After several redesigns, they’ve trimmed application time down to roughly 20 minutes.
Small Business Interruption Loans
For the most part, these are “forgivable loans” (if used to cover payroll and other expenses directly related to managing COVID-19’s economic impact on your business).
What Businesses Are Eligible Businesses?
Companies with fewer than 500 employees (with some limited exceptions), sole proprietors, and independent contractors
To further qualify, these businesses need to have been “substantially affected by COVID-19.” This includes:
- Supply chain disruptions
- Staffing issues
- A marked decrease in sales or customer activity
- Shuttered due to temporary governmental closure orders
Loan Duration & Amount
Loans are available with a maximum duration of 10 years. And the amount must be the lesser of $10 million or 2.5 multiplied by the average total monthly payments of the business’s payroll, mortgage payments, rent payments, and debt service obligations over the year prior to the loan date. employees
What Can These Funds Be Used For?
- Payroll support (for annual salaries up to $100,000), plus paid sick, medical, or family leave, and health care benefits during sanctioned leave
- Employee salaries
- Mortgage payments
- Other debt incurred while managing operations during the impacted period
What Loan Forgiveness Opportunities Are Available?
Eligible businesses shall take advantage of “loan forgiveness” in the amount equal to the cost of covering payroll continuity and other sanctioned costs in the 8 weeks following the loan’s origination.
- To take advantage of this opportunity, the borrower must submit an application to their lender with the following documentation:
- Verification showing all full-time equivalent employees on payroll and the other costs covered under “Allowable Uses,” which includes:
- Payroll tax filings (as reported to the IRS)
- State income, payroll, and unemployment insurance filings
- Financial statements verifying payment on debt obligations incurred before the covered period
- Any additional documentation the lender deems necessary to justify the application
Important Note: The loan forgiveness amount will be reduced based on decreased employee wages (in excess of 25% for any employee) or employee numbers are decreased during the forgiveness period.
SBA Economic Injury Disaster Loan Program
Under “Phase III” of this SBA program, loans up to $2,000,000 are available to small businesses.
Who is Eligible For These Loans?
- Small businesses (which includes non-profits) affected by the coronavirus in presidential and SBA-declared disaster areas (keep in mind, this is a growing list that will contumely updated)
What Are the Interest Rates on These Loans?
- 2.75% for nonprofits
- 3.75% for small businesses
What’s the Term Length on These Loans?
- The terms will vary, but to ensure affordability, repayment lengths are available for up to 30 years.
What Can These Borrowed Funds be Used For?
- Accounts payable, fixed debts, payroll, and other expenses accrued due to the impact of the coronavirus pandemic.
What Supporting Documentation Will You Need to Provide?
- This could include… Your business’s most recent tax returns, a personal financial statement, and a list of liabilities that incorporates your current debts.
Find out more at the SBA’s loan guidance website.
How Do You Apply for These Loans?
- Submit your application directly through the SBA Application Website (Select Economic Injury as your reason for applying).
- You can also contact the SBA directly at the disaster assistance customer service center: 1-800-659-2955 or e-mail email@example.com.
Additional Relief Programs
“Phase II” Coronavirus Stimulus: Families First Coronavirus Response Act
This portion of the stimulus package provides tax credits for small businesses (with 500 employees or less) to cover:
- Two weeks of paid sick leave for employees who have been quarantined, have a sick family member, or have been impacted by school closings
- Up to three months of paid family and medical leave totaling no less than two-thirds of regular pay for impacted employees noted above
- The option for the Labor Department to exempt businesses with fewer than 50 employees from abiding by the paid leave mandate, if the Labor Department decides the new law could pose an existential threat to the company
“Phase III” Coronavirus Stimulus
This portion of the stimulus package includes over $1 Trillion in spending, tax benefits, loans, and other aid to businesses (totaling $2 trillion in overall aid).
Specifically, this includes delay in payment of Employer Payroll Taxes:
- Payroll taxes due through the end of 2020 can be deferred. 50% of deferred payments are not due until December 31, 2021. And the remaining 50% is not due until December 31, 2022
- Taxpayers with indebtedness forgiven by the CARES Act are excluded from this deferment option
- Changes to Net Operating Loss Rules allow businesses to use present losses against past profits to claim refunds
- The Act temporarily reverses changes to how net operating losses can be carried back
- Losses from 2018, 2019 and 2020 can be carried back for up to five years (or forego the carryback and instead carry the loss forward) for 2019 and 2020 income
- Business interest expense deduction is increased from 30% to 50% for 2019 + 2020
Stay Tuned for Additional Updates!
As I’ve mentioned several times now, there is undoubtedly more to come. And of course, I’m keeping a sharp eye peeled on this ever-evolving situation. In the meantime, if you have any tax or finance questions related to this crisis, please get in touch with me…
I look forward to hearing from you!