This is a special release episode with an update aimed at giving more information to business owners regarding the stimulus bill. We recorded this update on April 2, 2020 about the much anticipated stimulus bill that was approved on Friday of last week. We wanted to check in on what we know now, things you should do as a business owner and what you need to know moving forward. If you'd like to listen to the full episode, you can find it on our website at pjscpas.com/29 or search for Cultivating Business Growth anywhere you listen to your podcasts.
What we cover in this episode:
- 00:32 – Intro
- 06:49 – Families First Coronavirus Response Act
- 09:15 – Emergency Paid Sick Leave Act
- 10:44 – Emergency Family Medical Leave Expansion Act
- 11:59 – How to get your payroll reimbursed
- 15:29 – Coronavirus Aid Relief and Economic Security Act (CARES Act)
- 16:59 – Economic Injury Disaster Loan (EIDL)
- 20:35 – Paycheck Protection Program (PPP)
- 25:51 – Long-term implications
- 27:49 – Unemployment considerations
- 32:44 – Tax changes
- 35:05 – Additional programs available
Families First Coronavirus Response Act
The Families First Coronavirus Response Act was signed into law on March 18th and is also referred to as the Families First Act. There were two main bills that became effective on April 1, 2020, including the Mandatory Sick Leave Pay and expansion of the Family Medical Leave Act (FMLA). This applies to businesses with 500 or fewer employees and involves leave that employees would take between April 1, 2020 to December 31, 2020 if they are unable to work or telework. As a business owner, you must pay any employees who qualify. You are then allowed a dollar for dollar tax credit from the federal government. This law also applies to self-employed individuals, which is an unprecedented inclusion under this act.
Emergency Paid Sick Leave Act: This allows 10 days of sick leave and tax credit for yourself if you are subject to a quarantine order, advised by a health care provider to self-quarantine or if you have symptoms related to COVID-19 and seeking a medical diagnosis. It also provides 10 days of sick leave pay and offsetting credit if you’re caring for other people that have those same health situations or for a child who’s daycare or school is closed.
Emergency Family Medical Leave Expansion Act: Prior to this expansion act, the FMLA did not typically apply to small businesses under 50 employees but now it does. The bill provides for 10 weeks of pay after 2 weeks of sick pay. It is for a qualifying need related to COVID-19.
There are caps on the amount that are paid for these two bills. For the Emergency Family Medical Leave Expansion Act, the cap is 10 weeks at $1,000 per week per employee.
How to get your payroll reimbursed
Businesses must pay for their employees and will get a payroll tax credit. Businesses can stop paying current payroll taxes, including FICA and medicare tax withholding to help offset the cost of paying their employees. All payroll tax credits will be calculated when you file your quarterly Form 941. You can also file for accelerated payments on Form 7200 which will allow you to recover funds faster and help cover the wages of employees.
There are exemptions to both of these bills for employers with 50 or fewer employees. If paying employees under the bill threatens the viability of the business then you may be exempted from the bills. If you feel your business might qualify for the exemption, you should seek guidance and assistance from professionals before moving forward. Additionally, if you use a payroll provider such as ADP or Paychex, reach out to them for assistance because they should be able to assist you further.
Coronavirus Aid Relief and Economic Security Act (CARES Act)
The CARES Act was signed into law on March 27th and provides a total of $2 trillion dollars of aid. Of that amount, $377 million dollars applies to small businesses. There are a multitude of rules, regulations and components, however, we will highlight the two loans that are available to businesses as a result of this act. It’s critical that you speak with your professional network, including your banker, financial advisors and CPA.
Economic Injury Disaster Loan (EIDL): This loan is available through the Small Business Association (SBA) and businesses can apply for a loan with a maximum of $2 million dollars. It allows for a $10,000 advance that can be made available to small businesses within 3 days of applying for the loan. It is typically unheard of that you can apply for a loan funded by the government and have it processed within 3 days, but this is what the government has claimed with the release of this loan. It is important to understand that the $10,000 advance does not need to be repaid and it does not count as income. You can apply for the loan directly on the SBA website. The application to apply for the grant is short and the SBA will contact you to let you know what additional information they may need for a larger sum of money. The interest rate on the loan is 3.75% for businesses and 2.75% for non-profits. The term is up to 30 years and the first loan payment is due 1 year after the loan origination date. The loan can be used for what the business needs to operate and can be used for payroll, rent, utilities and general business expenses.
There are personal guarantees that will be needed for loans that are greater than $200,000, which will require you to truly think prior to personally guaranteeing a loan. There are considerations to determine before securing a loan with these terms. Are you going to be comfortable with the terms of that loan 1 year from now or 2 years from now? Will you have the cash flow to pay the loan?
Paycheck Protection Program: You will also hear this referred to as the PPP. This is another loan funded by the federal government, however, instead of applying directly through the SBA, you will need to apply through a bank. The lender must be able to do SBA 7(a) loans, which is a type of small business loan. The maximum amount to borrow is $10 million dollars and requires more details for calculating the loan amount. The loan amount is based on your payroll costs. The first loan payment is going to be at least 6 months after the loan originates. The loan must be used for payroll, mortgage interest, rent or utilities and does not require a personal guarantee.
What makes this loan special is that the first 8 weeks of expenses, including payroll, mortgage interest, rent and utilities, may be forgiven and may not need to be paid back. The forgiveness is not automatic and you’ll need to apply for forgiveness through your lender.
Documentation of the expenses you’ve paid will be required and your bank will let you know within 60 days if that debt will be forgiven. It is very important that you track the first 8 weeks of your expenses very closely so that you can provide proof to your lender. The lender will make the decision based upon the criteria that’s been established by the law.
The primary purpose of PPP is to keep your employees on your payroll. As an incentive for businesses, they are willing to forgive 8 weeks of expenses as long as those expenses fall under the criteria of the loan. The lender may also forgive your mortgage interest, rent and utilities however there’s a limit to how much non-payroll costs they will forgive. For example, if they are going to forgive $10,000, not more than 25% of that amount can be non-payroll costs. You can have $2500 of mortgage interest, rent and utilities and then $7500 would be payroll costs.
Obviously there are many factors when determining which loan you feel is appropriate for your business. You want to do your best to avoid scrambling into these loans without considering the long-term implications. Will you have the ability to repay, especially if you are personally guaranteeing the loans? What will your cash flow be when you’re back up and running? Talk with your accountant, CPA, tax advisor, business advisor, banker, etc. to determine what loan is the best fit for your business.
Prior to applying for the loans, it’s important to understand that you cannot have both loans at the same time. You can apply for the EIDL loan and roll it into the PPP loan but you cannot get the PPP loan and roll it into the EIDL loan. You can apply for both loans and then determine which terms and conditions are best for you, however you’ll want to discuss these options with your financial team prior to deciding which loan to get.
Many business owners are concerned about their employees and making sure they are getting what they need to make it through this tough time. As part of the CARES Act, the federal government expanded unemployment benefits. It allows for more people to be eligible for unemployment, as well as increasing the amount of money they would receive if they qualified. Unemployment is a state program and in order to qualify for unemployment benefits, employees must file directly through their state. Every state will have its own rules to determine who is eligible and what percentage of your pay you’ll receive. The federal government through the CARES Act is allowing an additional $600 per week in addition to the state benefit for up to 4 months. The state must sign an agreement with the federal government in order to receive these funds for qualified unemployed individuals.
If you are considering laying off or furloughing your employees, there may potentially be more unemployment benefits for them. Think about your business when you need to make these tough decisions. Whether you layoff an employee or not during this time may impact whether you even have a business at the end of all of this. Knowing that these additional unemployment benefits may be available to your employees and understanding that they have financial resources available to them, can make the decision to layoff or furlough your employees easier. This decision may be necessary so that the business stays viable and your employees have a place to return to work.
Independent contractors and self-employed individuals may also be qualified for unemployment benefits. Check with your state unemployment office to determine if you are eligible.
As many of us are aware, tax deadlines have been changed and pushed back. We discussed this further in episode #27: Legislation, Support & Assistance Programs for Your Business During Coronavirus Outbreak – Part 1. Have a discussion with your tax professional to determine when you should be filing. Even though the deadline may be later, you may want to file as soon as possible if you are expecting a refund to help you with your cash flow.
There is an Employee Retention Credit that’s available on Form 7200. This allows for up to 50% of wages up to $10,000 in wages per employee. Meaning you can receive up to $5000 per employee if they are making $10,000. There are caps and limits to be aware of to ensure that you qualify so discuss this with your tax professional prior to applying. If it applies to your business, also discuss the NOL (Net Operating Loss) carrybacks that have become available again. The federal government is also allowing refunds to corporations for the Alternative MinimumTax Credit (AMT) which is typically a little different than what has happened in the past. Corporate charitable contributions deduction limits are also available if you’re financially able to donate during this time. There are other more technical changes that are available and you should discuss all of these with your tax professional.
Additional programs available
In addition to the loans we discussed above, there are state and private assistance programs and grants that are also available to you. If you’re looking into these programs, make sure you really read the terms and conditions. If you’re receiving state funding and assistance, it may reduce what you’re able to get at a federal level. The loans that you receive federally are not considered taxable income, however the state grants and programs may be considered taxable. Make sure you fully understand the types of assistance programs that are available prior to accepting. This is where your professional team is crucial in helping guide you and make suggestions that can help you in the long run.
There are private assistance programs that are available as well. Intuit, the makers of Quickbooks are also providing funding and crowdsourcing Gofundme accounts to assist small businesses with The Small Business Relief Initiative. Intuit is providing assistance to businesses that have Quickbooks loans and can also provide lending to them. Clio has stepped up to provide a relief initiative as well for the legal community. Check with your industry and your state to see what other programs might be available to you.
Links mentioned in this episode:
- SBA – COVID-19 Economic Injury Disaster Loan Application
- Intuit – The Small Business Relief Initiative
- Intuit COVID-19 Resource Center
- Clio COVID-19 Legal Relief Initiative
- episode #27: Legislation, Support & Assistance Programs for Your Business During Coronavirus Outbreak – Part 1