Disclaimer: This is for purposes of information only and the ACS Philadelphia Section is not endorsing this as a product.
CARES Act Overview:
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was recently signed into law to help provide financial stability and relief for individuals and business affected by COVID-19. While the bill is very broad and addresses a number of areas and industries, and many of the specific details will still need to be analyzed, the following are important to highlight for both business owners and employees/individuals:
Paycheck Protection Program (PPP): The PPP provides federally guaranteed loans to small businesses to cover business operating costs for eight weeks. Significantly, these loans may be fully forgiven (including interest) if the small business uses the loan proceeds for payroll costs (including benefits), mortgage interest, rent and/or utilities while maintain their payroll during the crisis.
The Paycheck Protection Program exhausted the initial resources but received an additional $310 billion under the Paycheck Protection Program and Health Care Enhancement Act. Businesses are encouraged to immediately contact their local Small Business Administration lender, federally insured depository institution, federally insured credit union or Farm Credit System institution for more information.
Employee Retention Tax Credit: The CARES Act provides a refundable payroll tax credit up to $5,000 per eligible employee for businesses impacted by COVID-19. The credit is available to employers whose:
- Operations were fully or partially suspended due to a COVID-19-related shutdown order; or
- Gross receipts declined by more than 50% when compared to the same quarter in the prior calendar year.
If there were an average of 100 or fewer full-time employees during 2019, the business may claim the tax credit on the wages of all employees.
Economic Injury Disaster Loans (EIDLs): The CARES Act expands eligibility for access to Economic Injury Disaster Loans to include Tribal businesses, cooperatives, employee stock ownership plans (ESOPs) with 500 or fewer employees, or any individual operating as a sole proprietor or an independent contractor during the covered period (January 31, 2020 to December 31st, 2020). The Paycheck Protection Program and the Health Care Enhancement Act clarifies that agricultural businesses with 500 employees or fewer can also access loans from the EIDL program.
Eligible businesses that have applied for a COVIDD-19 EIDL have access to an emergency grant enabling them to request up to a $10,000 advance of the loan, which will be forgiven if the proceeds are used to:
- Provide paid sick leave to employees
- Maintain payroll
- Meet increase material costs
- Make rent or mortgage payments
- Repay obligations that cannot be met due to revenue loses
The Paycheck Protection Program and Health Care Enhancement Act includes an additional $60B in funding for Economic Injury Disaster Loans, including $10B for Emergency Grants.
Sick and Family Leave Tax Credits: The Families First Coronavirus Response Act establishes credits for sick and family leave costs for businesses with fewer than 500 employees.
- Businesses are eligible to receive refundable tax credits to help offset the costs associated with providing sick and family leave.
- Refundable credits are also available for self-employed individuals.
Deferral of Payment of Employer Payroll Taxes: The CARES Act permits employers and self-employed individuals to defer payments of the employer shares of the Social Security tax incurred from March 27th, 2020, through December 31st, 2020. Deferred taxes must be repaid over two years, with half the amount due by December 31st, 2021, and the remaining by December 31st, 2022.
(It’s important to note that certain provisions described above cannot be used in conjunction with others.)
Additional Economic Relief Measures for Businesses: The CARES Act includes other economic relief for businesses, including the following:
- Enables immediate tax deductions for the cost of qualified improvements to property
- Relaxes the limitation on a business’s use of net operating losses
- Relaxes the limitation on the amount of interest expense businesses are permitted to deduct
- Accelerates the ability of businesses to recover alternative minimum tax (AMT) credits
- Increases the charitable deduction limit for corporations from 10% to 25% of taxable income
This material is for general education only and any specific questions related to your individual circumstances should be discussed with your personal financial, tax, or legal advisor, as appropriate.
For additional information, please feel free to contact J.P. Northrop, Financial Advisor to the Philadelphia Section of the American Chemical Society:
J.P. Northrop, AAMS®
Edward Jones Investments