As many of you know, last Friday afternoon the largest fiscal stimulus in US history (the Coronavirus Aid, Relief and Economic Security, or CARES, Act) was signed into law in attempt to triage a US economy that has come to an unprecedented grinding halt. The extraordinary $2+ trillion fiscal stimulus package represents around 10% of all annual US economic output, topping policy response in both the Great Recession of 2008-2009 and even the Great Depression.
The month of March has been a whirlwind of legislative activity, with three COVID-19-related bills and over 2,000 pages of legislation added to the books. Needless to say, such haste has led to a lot of information and misinformation alike.
For most of you, we understand that life is already complicated enough at the moment and you just want to figure out if there is anything you need to do. To help you, we have attempted to break down the most salient provisions of the CARES Act according to a variety of sample situations described below.
For those of you running small businesses, we sympathize that the decisions you are having to make amidst so much uncertainty are unmatched. The provisions of the CARES Act are detailed and complex. We hope the options outlined below provide some interim guidance and we welcome further discussion and consultation as we collectively navigate these challenging times.
If you have any questions or want to discuss the specifics of your situation, please don’t hesitate to reach out to us.
- Tax Deadline and Payment Extensions
- Direct Relief Payments for Lower Income Households
- Pandemic Unemployment Assistance
- Student Loan Deferrals
- Mortgage Payment Deferrals
IF YOU ARE SELF-EMPLOYED OR HAVE A LOAN-OUT
- Expansion of Unemployment Assistance (even if you are still getting residual payments)
- Payroll Tax Credits
IF YOU HAVE DOMESTIC EMPLOYEES WHO MAY NEED HELP
IF YOU RUN A SMALL BUSINESS
- Options for Retaining Your Employees
- Sick Leave Requirements
- Family Leave Requirements (Childcare Shortages)
- Payroll Tax Credits (Modest Impact)
- Paycheck Protection Program (Loan with Forgiveness)
- Work Sharing Program (Reduce hours and let employees supplement with unemployment)
- Considerations for Closures and Layoffs
- Emergency Economic Injury Grant (smaller, short-term cash needs)
- Expanded Ways to Directly Help Employees Who Are Struggling
IF YOU WANT TO HELP OTHERS
|Filing (F) /Payment (P)||Original Date||New Date||Extension Date|
|Individual (FP) – Fed/CA/NY||April 15||July 15||October 15|
|First Quarter Estimate (P) – Fed/CA/NY||April 15||July 15||N/A|
|Second Quarter Estimate (P) – Fed||June 15||June 15||N/A|
|Second Quarter Estimate (P) – CA/NY||June 15||July 15||N/A|
|Minimum Tax (P) – CA||April 15||July 15||N/A|
|LLC Fee (P) – CA||June 15||July 15||N/A|
|Non-wage withholding (P) – CA||Varies||July 15||N/A|
|Fiscal Year Corporations (F) – Fed||Varies||No Change||N/A|
Cash Flow Planning: Please note that in June and July you may be required to pay the remaining balance of your 2019 taxes along with 1st and 2nd quarter estimates for 2020.
The amount of tax credit rebate depends on your filing status, your income in 2019 (2018 if you have not yet filed your 2019 return) and the number of dependents you are claiming who are under 17 years of age. The IRS has suggested they will set up a portal soon and begin processing payments in three weeks but this is a massive undertaking. We think you should conservatively plan for up to three months before stimulus is received.
|TAX CREDIT REBATE||FILING STATUS||INCOME LIMIT|
|Married filing Separate||$75,000|
|Head of Household||$112,500|
|Partial||Single||$75,001 – $99,000|
|Married filing Separate||$75,001 – $99,000|
|Head of Household||$112,501 – $136,500|
|$2,400||Married Filing Jointly||$150,000|
|Partial||Married Filing Jointly||$150,001 – $198,000|
In addition, you will receive $500 for each dependent child under the age of 17. Only the parental taxpayer claiming the child as a dependent will receive the $500.
Incomes above the top of any limit will not receive a stimulus payment. However, the stimulus payment is an advanced tax credit from your 2020 tax return. As a result, there will be a reconciliation of this credit on your 2020 return, and if your 2020 income is below the limits above, you will get a credit at that time. That said, you will not be required to pay back any stimulus received based on prior years’ income if your 2020 income ends up exceeding the limits above.
To calculate your stimulus payment, click here.
States will still continue to pay unemployment to people who qualify. That amount varies by state and income level, and while 42 states offer 26 weeks of unemployment, seven states (SC, NC, MO, AR, FL, ID, AL) offer fewer weeks and one (MT) offers more.
The CARES Act adds an additional $600 per week in federal support through July 31, 2020, and extends state unemployment to allow an individual to collect for up to 39 weeks (versus the normal 26 weeks in California). The Federal government will pay these benefits even if the individual does not receive state benefits.
To illustrate, a Californian eligible for the maximum benefit ($450 per week) would receive $1,050 per week ($450 from California, plus $600 federal unemployment) through July 31st.
To apply for unemployment (federal and state), visit your state’s website.
Are Independent Contractors eligible?
Maybe. Under the CARES Act (Federal) you can receive unemployment of $600 per week. Depending upon circumstances, you may be eligible for state unemployment as well. Visit the link above.
What if I have a loan-out?
If you have a loan-out corporation, you are treated as an employee of your corporation. You could be considered unemployed and eligible for unemployment when the following elements are present:
- You are the company’s president and sole shareholder
- Incorporation was primarily for personal liability and tax purposes
- The corporation has no other employees, merchandise, or business except supplying your personal services
- The temporary cessation of corporate functions stems from circumstances beyond your control, e.g., the industry being erratic as opposed to seasonal;
- You are compensated only for the services of your trade and not as president of the corporation
- No significant managerial affairs are required of you when work in your trade through the corporation is not available, and your corporate activity is limited to seeking work on behalf of the corporation
- The corporation must have paid you a salary in the last 12-18 month period
- The corporation paid unemployment insurance on your behalf (if we calculated your 2019 salary and arranged payment through Paychex, then you’ve paid into the UI fund)
The best support for most of these factors are Bylaws and an Employment Agreement. If you are not sure if you have these, please reach out to us, and we will be happy to help.
When completing the unemployment claim, please remember your employer is your corporation.
What if I am still receiving residuals from prior work?
You can still apply for unemployment. However, your state may reduce your maximum benefit for some payments, such as residuals.
The CARES Act suspends repayments on federal (not private) student loans through September 30, 2020 and provides that interest accrued during that time will be waived. See this link for more information. Importantly, such deferrals do not impact your credit. Check with your loan servicer to make sure your loan qualifies (most loan servicers have links on their web page for Coronavirus-related issues), and for options available to you if it does not.
Mortgage payments for loans backed by the federal government (FHA/Fannie Mae loans) can be deferred up to twelve months at the request of the borrower. Note that mortgages backed by the government will generally be lower balance loans (under $500K).
Families First Act (for sick leave or childcare shortages)
Employers who pay either mandatory paid sick leave or mandatory paid family leave benefits may claim a 100% refundable credit against their quarterly payroll deposits.
A similar credit is available to self-employed individuals against their self-employment tax. However, the self-employment tax credits will be claimed on the self-employed individual’s 2020 income tax return.
Employer Retention Credit (for those with severe business impact)
The CARES Act also contains a refundable employer retention credit against quarterly employment taxes for employers impacted by COVID-19:
- Impacted employers are those who fully or partially suspended operations due to COVID-19 or whose gross receipts declined in a quarter by more than 50% compared to the prior year
- The credit is equal to 50% of qualified wages paid after March 12, 2020, and before January 1, 2021, up to a $5,000 maximum per credit
- The credit is claimed against the employer’s portion of Social Security taxes
- The IRS will be providing refund advances
- The credit cannot be claimed by businesses receiving a CARES Act Payroll Protection loan from the Small Business Administration
If an employee has accrued sick time available, the employer must provide such leave and compensate the employee. In addition, under the Families First Coronavirus Response Act, employers with less than 500 employees must also provide up to two weeks of paid sick leave (80 hours, or a part-time employee’s two-week equivalent).
Employer must pay 100% of wages (not to exceed $511 daily and $5,110 total) if the employee:
- is subject to a Federal, State, or local quarantine or isolation order related to COVID-19
- has been advised by a health care provider to self-quarantine related to COVID-19
- is experiencing COVID-19 symptoms and is seeking a medical diagnosis
Employer must pay 66% of wages (not to exceed $200 daily and $2,000 total) if the employee:
- is caring for an individual who is (1) subject to a Federal, State, or local quarantine or isolation order related to COVID-19; or (2) has been advised by a health care provider to self-quarantine related to COVID-19
- is experiencing any other substantially similar condition specified by the U.S. Department of Health and Human Services
The good news is that you will be able to reduce your payroll tax deposit for 100% of wages paid to your employee under this expanded sick leave provision (see above). The bad news is you must come up with the cash to pay your employee first.
Under the Families First Coronavirus Response Act, employers with less than 500 employees must provide up to 12 weeks of paid sick leave and expanded family and medical leave paid at 2/3 of regular pay for up to $200 daily and $12,000 total.
Employees are entitled to this leave if they have been employed by their employer for at least 30 calendar days immediately prior to the first day of the employee’s leave.
Employers with 50 or less employees may be exempt from providing child-care related paid sick leave and expanded family and medical leave if it would jeopardize the viability of the business to continue operating.
As with the sick leave provisions, the good news is that you will be able to reduce your payroll tax deposit for 100% of wages paid to your employee under this (see above). The bad news is you must come up with the cash to pay your employee first.
Businesses with 500 or fewer employees, which were operational on February 15, 2020, are generally eligible for up to 2½ times the business’s average monthly payroll over the prior 12 months (up to a maximum loan of $10 million). This is a 2-year, 1% loan, available through June 30, 2020. Funds for this program are limited, and you are advised to submit your application early. Repayment of loans which are not forgiven (see below) starts six months after disbursement.
The Paycheck Protection loans can be used for the following expenses:
- Payroll costs (up to $100,000 per employee);
- Group health coverage;
- Business occupancy costs (mortgage interest, rent, and utilities); and
- Interest on mortgages incurred in the ordinary course of business.
The loans may be forgiven, up to the amount of the principal, provided that a) no more than 25% of the principal is used for non-payroll costs, b) there has been no reduction in headcount (or if there has, those employees let go are rehired no later than June 30, 2020) and c) employee compensation has not been reduced by more than 25%.
We are happy to assist you in applying for this loan. Should you choose to apply yourself, you will apply for the PPP loan through your bank (most banks are participating). You will be required to provide certain information as part of the process. Loan forgiveness will also be through the bank, and will require you to substantiate how you spent the loan proceeds.
Self-employed individuals, sole proprietors (Schedule C filers) and Independent Contractors are also eligible to receive this loan. People who fall into this category will be able to apply beginning April 10, 2020, while all others can apply on April 3, 2020.
How do I apply for this loan? What documents do I need?
Most banks are participating in this program. We can help you locate a qualifying lender if your existing bank does not participate in the Paycheck Protection Loan program.
Each bank may have different requirements, but we suggest that you begin gathering your payroll records prior to beginning the application process.
This program allows employers to seek an alternative to layoffs — retaining their trained employees by reducing their hours and wages that can be partially offset with unemployment insurance benefits.
Workers of employers who are approved to participate in the Work Sharing Program receive the percentage of their weekly Unemployment Benefit amount based on the percentage of hours and wages reduced, not to exceed 60 percent.
Visit this site to learn more about its benefits for you and employees, and how to apply.
If you are planning a closure or layoffs as a result of the Coronavirus, we recommend you consider the following:
- How much accrued sick and vacation hours does each employee have, as you will be required to pay it out upon layoff
- If it will be more difficult to hire and train new staff once your business picks up again
- You should consult with your labor attorney to make sure you are properly following all the required labor laws
Under both options listed above, you may also want to consider the following:
- Ways to upgrade skills of your employees to maintain a quality workforce and avert the need for layoffs
- Customized training designed for new and existing employees to help businesses stay competitive, productive, and profitable, and help employees retain high-wage, high-skilled jobs
The U.S. Small Business Administration is currently offering “targeted low-interest federal disaster loans of up to $2 million for working capital to small businesses suffering substantial economic injury” resulting from the current Coronavirus situation. It is recommended to file it online here.
The Economic Injury Disaster Loans for small businesses have a 3.75 percent interest rate (fixed) and non-profits have 2.75 percent interest rate loans. There is no payment for the first 12 months.
There is a streamlined process for EIDL application and an advance of 10 percent (up to $10,000) of the expected loan amount (based on your submission) within three days of the application. This amount is a grant and you keep it even if the EIDL loan is denied.
Caution: You cannot apply for both the SBA loan and Payroll Protection Loan for the same purpose.
There are two ways you can help your employees:
- New York, Washington and California have been declared disaster areas by the Federal government. Therefore, employers can provide employees located in those areas with payments to cover essential living expenses (rent, food, etc.). The payments are tax-free to the employee and deductible by the employer (employers may have to pay state payroll taxes on these payments).
- Employers can pay up to $5,250 toward their employee’s student loans. Payments can be made directly to the employee or to the loan servicer.
- Give cash to a charity. Donate to charitable organization helping to respond to COVID-19 crisis. Please click here for a list of charities. For those who itemize deductions, the current 60% income limits are waived, and non-itemizers can still deduct up to $300 of contributions.
- Give non-cash items to a charity. Food and other items donated to charities that accept them qualify as charitable contributions.
- Give to a GoFundMe or Indiegogo fund. Both GoFundMe and Indiegogo allow charitable organizations to post fundraisers (Kickstarter does not), but just because a fundraising campaign is on GoFundMe or Indiegogo does not automatically mean it’s tax-deductible. Check before you donate.
- Give to an individual. Any amount in excess of $15,000 may require filing of the gift tax return. Each person can give an individual $15,000 so a couple can give up to $30,000 in total (but should do so in separate checks). “Amount” includes the value of non-cash gifts.
- Give to a business’ employee fund. If your favorite restaurant, studio or production company sets up a fund to help its employees, you’re welcome to give, but this is not a tax-deductible gift.