CARES ACT: Forgivable Government Loans, Stimulus Checks & Tax Credits

image
 

Stimulus Checks

  • Who will get a check?
  • How much is the payment?
  • When will checks be sent?

On March 27, The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed by the house of representatives and then signed into law by the President. The Cares Act provides $2 Trillion in emergency financial assistance to individuals, small businesses, large corporations, hospitals, health centers, state, and local governments that are impacted by the pandemic. These measures include economic recovery checks for taxpayers, as well as several other tax provisions affecting individuals.

Who is eligible for a stimulus check?

All Americans with an Social Security Number:

  • that are not under 17 or claimed as a dependent
  • check recipients are required to have a SSN for themselves, their spouse, and any child they claim (or an adoption taxpayer identification number)

All Social Security Recipients are also eligible:

  • Individuals who are collecting Social Security benefits for retirement, disability or Supplemental Security Income will be eligible for the stimulus checks,
  • their eligibility will be based on their tax returns or Social Security Administration data (information from the Form SSA-1099 Social Security Benefit Statement or Form RRB-1099 Social Security Equivalent Benefit Statement).

Note: for an eligible person to receive a check they must have either one of the following:

  1. a social security benefit statement, or
  2. a tax return filed for 2018 or 2019

If you receive social security you don't have to file taxes to receive a stimulus check. Any person that does not receive social security benefits (stated above) and has not yet filed a 2018 or 2019 tax return will not receive a check; unless they file a 2018 or 2019 tax return as soon as possible.

Who is not eligible for a stimulus check?

  • Non-resident aliens
  • An adult who is claimed as a dependent on someone else’s tax return
  • Anyone with income above defined income thresholds (below)

How much will these payments be?

The amount on the stimulus check will based on the person's adjusted gross income and their tax filing status. The government will use the AGI from the filed 2019 tax return. If a 2019 tax return has not yet been filed, then payments will be based on the AGI of 2018 tax return (If your 2019 AGI qualifies you for a check then you should file as soon as possible).

  • filing status single with an AGI of $75,000 or less will receive a payment of $1,200
  • filing status married filing jointly with an AGI $150,000 or less will receive a payment of $2,400 payment
  • filing status head of a household with an AGI $112,500 or less will receive a payment of $1,200
  • the payment amount can be increased by $500 for each child claimed

The payment amounts are gradually phased out for those with higher incomes. Payments for higher income individuals would be reduced by $5 for every $100 of income above the threshold. For Example, if you are a single filer earning $75,100, your check will be $1,195 ($1,200-$5). If you are a single filer earning $80,000, your check will be $950 ($1,200-$250).

Those with the following income levels will not receive a check:

  • Individuals with an AGI above $99,000,
  • Joint Filers with an AGI above $198,000, or
  • Head of Household with an AGI above $146,500

If these higher income earners have a lower AGI in 2020 they may be able to receive a tax credit when they file their 2020 tax return.

image

When will the check be sent?

The checks will begin to be issued with-in three weeks. However, it may take longer.

How is the money sent?

It will be sent by direct deposit or mail. The IRS will send out notices to all recipients with information about how the payment was made and the amount of the payment.

If you have received a tax refund by direct deposit in the past two years the money will be sent to your bank account. In the next weeks the Treasury department plans to develop a portal for individuals to provide their banking information to the IRS online. If they do not have your banking information the IRS will mail the check to your last known address.

The details are still being worked out, but there are a few important things to know, no matter what this looks like.

1. The government will not call to ask for your Social Security number, bank account, or credit card number. Anyone who does is a scammer.

2. These reports of checks aren’t yet a reality. Anyone who tells you they can get you the money now is a scammer.

image
 

Economic Relief Loans for Small Businesses

  • Paycheck Protection Program
  • Economic Injury Disaster Loan

Paycheck Protection Program Loans

Paycheck Protection Program

The stimulus package provides $350 billion to fund a new Small Business Administration (SBA) lending program the Paycheck Protection Program. It significantly increases funding, expands flexibility, and loan guarantees. The PPP gives small businesses and non-profits the opportunity to obtain working capital needed to weather the crisis and aid in their recovery. Moreover, the PPP is intended to provide an incentive for businesses to retain their employees by offering forgivable loans with 100% guarantee.

SBA Approved Lender

Only SBA authorized lenders can offer PPP loans. These banks have the necessary qualifications to process, close, and disburse loans. The approved lenders are now accepting applications. Its important to note that these loans are first-come, first-served, the cash will run out before every eligible business receives a loan. We can help you with the application process.

Eligible Businesses

The following types of entities and individuals can qualify for loans through the PPP:

  • Any business, nonprofit, veterans’ group, or tribal business with 500 or fewer employees
  • Sole proprietors, independent contractors, and eligible self-employed workers
  • Hotel and food service changes with 500 or fewer employees per location

Cover Period

The PPP provisions cover loans made during the covered period of February 15, 2020 through June 30, 2020 (these loans must be made during the period prior to June 30, 2020).

Unique Features

During the covered period the SBA loan program waives borrower requirements:

  • inability to obtain credit elsewhere not required;
  • no personal guarantee is required;
  • no collateral is required; and
  • there is no prepayment penalty for any payment made on a covered loan.

Instead, PPP loan applicants must make a good faith certification that:

  • the loan is necessary to support the ongoing operations of the business given the uncertainty of current economic conditions;
  • the loan proceeds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments; and
  • Between February 15, 2020 and December 31, 2020, the recipient has not received amounts under this subsection for the same purpose

Loan Amount & Rate

The interest rate for Paycheck Protection Program loans is 4.00% fixed.

PPP loans are limited to the lesser of:

  • $10 million, or
  • Borrower’s average monthly “Payroll Costs” multiplied by 2.5 (Method of calculation for Payroll Costs and definition of types of costs are provided below)
image
 
image

“Payroll Costs” include:

  • Salary, wages, commissions, payment of cash tip or equivalent
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment

“Payroll Costs” do not include the following:

  • compensation of any individual employee in excess of an annual salary of $100,000 as prorated for the period February 15 to June 30, 2020;
  • federal payroll taxes, railroad retirement taxes, and income taxes;
  • any compensation of an employee whose principal place of residence is outside the U.S.;
  • qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (“FFCRA”); or
  • qualified family leave wages for which a credit is allowed under section 7003 of the FFCRA. The FFCRA was passed on March 18, 2020.

Permitted Use of Proceeds

Small businesses that receive loans under the PPP must use loan funds to pay:

  • employee salaries (including commissions and tips)
  • group health premiums
  • rent and utilities
  • interest payments on mortgages or debt incurred before 2/15/20, not principal payments
  • retirement benefits
  • state or local tax assessed on compensation
  • vacation, paid leave (family, medical, etc.)

Deferral

The borrower can request and receive deferment of principal, interest and fees for a period of not less than six months and not more than one year (6 months – 1 year).

Loan Forgiveness

The principal amount of a PPP loan will be eligible for forgiveness up to the amount of a loan that was used to pay payroll costs, mortgage interest, rent, and utilities during the 8-week period following origination of the loan.

The amount of the PPP loan that is forgiven will be subject to reduction if the borrower reduces the number of employees, employee salaries or both during the eight-week period following the origination of the loan.

However, the PPP provides relief from this reduction if full-time equivalents or salaries are reinstated by June 30, 2020.

To get the full benefit of loan forgiveness, businesses must keep their employees and pay them at least 75% percent of their prior-year compensation.

The SBA will purchase any loan forgiveness amounts from its certified lenders and this canceled indebtedness will not result in taxable income to the business.

Loan Forgiveness Reduction

The table below demonstrates how much of the loan can be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees.

image

To apply for forgiveness, businesses must submit documentation regarding the eligible uses of loan funds

  • Documentation verifying the number of full-time equivalent employees and relevant pay rate, including state and federal payroll and unemployment filings;
  • Documentation verifying covered payroll, interest on debt obligations, leaves, and utility payments (such as, canceled checks, receipts, and account statements);
  • A certification from the recipient that all documentation presented is true and correct and the amount for which the forgiveness is requested was used for permissible purposes; and,
  • Any other documentation as required by the SBA.

Loan Amounts Not Forgiven

For covered loans that have a remaining balance after the loan forgiveness reduction, the remaining balance is guaranteed by the SBA, the loan will have a maximum maturity date of 10 years from application of loan forgiveness, and the interest rate cannot exceed 4%.

SBA Economic Injury Disaster Loan (EIDL)

The SBA Economic Injury Disaster Loan is also available to small businesses and non-profit organizations that suffer economic injury as a direct result of a declared disaster. This includes but not limited to retailers, restaurants, owners of rental property, wholesalers and others. This loan can be used to pay debt, accounts payable, payroll, and other bills that a small business can't pay due to the declared disaster. EIDLs are working capital loans to help small businesses and non-profit organizations of all sizes meet their ordinary and necessary financial obligations.

The Cares Act expanded the existing SBA Economic Disaster Loan Program

  • Up to $2 million
  • The Interest rates can be as low as 3.75% for small businesses and 2.75% for non-profits.
  • Long-term repayments offered in order to keep payments affordable, up to a maximum of 30 years
  • Small businesses; small agricultural cooperatives, small aquaculture businesses; most private non-profit organizations, Tribal businesses; Cooperative; Any individual operating as a sole proprietor; and an independent contractor
  • Borrowers can include businesses with more than 500 employees
  • Loan funds can be used as working capital to pay fixed debts, payroll, accounts payable and other bills that could have been paid had the disaster not occurred
  • EIDL loans will be available until December 31, 2020 where the Paycheck Protection loan program runs only until June 30, 2020.

EIDL Borrower Requirements Waived

Under the CARES Act the following requirements have been waived:

  • the requirement of any personal guarantee on advances and loans of not more than $200,000;
  • the requirement that a borrower be in business for the one-year period before the applicable disaster, as long as the borrower was in business prior to Jan. 31; and
  • the requirement that an applicant be unable to obtain credit elsewhere

Emergency EIDL Grants

The CARES Act permits EIDL applicants to request an advance of up to $10,000 from the SBA. This $10,000 emergency advance will be paid while an applicant’s loan application is pending. This advance is not required to be repaid.

Advance payment may be used for:

  • Providing paid sick leave to employees;
  • Maintaining payroll;
  • Meeting increased costs to obtain materials;
  • Making rent or mortgage payments; or
  • Repaying obligations that cannot be met due to revenue losses
image
image
 

Families First Coronavirus Response Act (Act)

  • Refundable Payroll Tax Credits
  • Paid Sick Leave Credit
  • Child Care Leave Credit

Small and medium-sized employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing coronavirus-related leave to their employees. This relief to employees and small and midsize businesses is provided under the Families First Coronavirus Response Act (Act), signed into law on March 18, 2020.

Subsequent legislation, the CARES Act, includes a provision that delays payment of employer payroll taxes due in 2020 with half due December 31, 2021 and the rest due December 31, 2022.

These same dates and amounts apply to tax owed by self-employed individuals as well with 50 percent due December 31, 2021 and the remaining amount not due until December 31, 2022.

Paid Sick Leave Credit

For an employee who is unable to work because of coronavirus quarantine or self-quarantine or has coronavirus symptoms and is seeking a medical diagnosis, eligible employers may receive a refundable sick leave credit for sick leave at the employee's regular rate of pay, up to $511 per day and $5,110 in the aggregate, for a total of 10 days.

For an employee who is caring for someone with coronavirus, or is caring for a child because the child’s school or child care facility is closed, or the child care provider is unavailable due to the coronavirus, eligible employers may claim a credit for two-thirds of the employee’s regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Paid Leave for Workers

Employees receive up to two weeks (80 hours) of paid sick leave (either 100 percent or 2/3 of employee's pay) and expanded paid child care leave when employees' children’s schools are closed or child care providers are unavailable due to COVID-19 related reasons. An employee who is unable to work due to a need to care for a child whose school is closed, or child care provider is unavailable for reasons related to COVID-19, may in some instances receive up to an additional 10 weeks of expanded paid family and medical leave.

Child Care Leave Credit

In addition to the paid sick leave credit, for an employee who is unable to work because of a need to care for a child whose school or child care facility is closed or whose child care provider is unavailable due to the coronavirus.

Eligible employers may receive a refundable child care leave credit. This credit is equal to two-thirds of the employee's regular pay, capped at $200 per day or $10,000 in the aggregate. Up to 10 weeks of qualifying leave can be counted towards the child care leave credit. Eligible employers are entitled to an additional tax credit determined based on costs to maintain health insurance coverage for the eligible employee during the leave period.

Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed or child care is unavailable in cases where the viability of the business is threatened.

How It Works

With the goal of "fast funds," employers will receive an immediate dollar-for-dollar tax offset against payroll taxes. Payroll taxes that are available for retention include withheld federal income taxes, the employee share of Social Security and Medicare taxes, and the employer share of Social Security and Medicare taxes with respect to all employees. Eligible employers who pay qualifying sick or child care leave will be able to retain an amount of the payroll taxes equal to the amount of qualifying sick and child care leave that they paid, rather than deposit them with the IRS. Eligible employers will be able to claim these credits based on qualifying leave they provide between the effective date and December 31, 2020. If there are not sufficient payroll taxes to cover the cost of qualified sick and child care leave paid, employers will be able to file a request for an accelerated payment from the IRS.

Eligible Businesses

Eligible employers are businesses and tax-exempt organizations with fewer than 500 employees that are required to provide emergency paid sick leave and emergency paid family and medical leave under the Act. Eligible employers can use the funds to provide employees with paid leave, either for the employee's own health needs or to care for family members. Furthermore, employers will be able to keep their workers on their payrolls, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

Compliance

Employers are required to comply with the Act within a specified period; however, there is currently in effect, a 30-day compliance period in which enforcement actions against any employer for violations of the Act are subject to 30-day non-enforcement period as long as the employer has acted reasonably and in good faith to comply with the Act. During the 30-day period, efforts will be focused on compliance assistance.

Post a Comment