The COVID-19 virus’s spread throughout the world has created unprecedented hardships for both families and businesses. As always, the health and well-being of our people and their families, our clients and communities are of the utmost importance to Burke Costanza & Carberry LLP. We understand that there has been significant uncertainty and disruption caused by the COVID-19 outbreak, but please be assured we will continue to do all we can to keep our clients informed about how to navigate these troubling times.
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act)
On Friday, March 27, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) (H.R. 748) and it was quickly signed into law providing a $2 trillion stimulus package that provides a broad range of economic relief measures for individuals, businesses and industries affected by the COVID-19 pandemic. The following is a brief summary of the key measures:
Recovery rebates for individuals. The act provides for issuing recovery checks of up to $1,200 for individuals, $2,400 for married couples and $500 per child (phasing out after income threshold of $75,000 for single filers and $150,000 for joint filers). The rebate amount is reduced as a taxpayer’s income exceeds the phase-out threshold. The amount is completely phased-out for single filers with incomes exceeding $99,000, and $198,000 for joint filers.
Special rules for use of retirement funds. The act removes the 10% early withdrawal penalty for distributions of up to $100,000 from qualified retirement accounts for coronavirus-related purposes. Income attributable to such distributions will be subject to tax over three years.
Temporary waiver of required distributions from certain retirement plans. The act waives the required minimum distribution rules for certain defined contribution plans and IRAs for the calendar year 2020.
Charitable contributions. The act permits individuals to deduct up to $300 of cash contributions made to charitable organizations, whether they itemize deductions or not. For individuals that do itemize, the 50% of adjusted gross income limitation on deductions for charitable contributions is suspended and for corporations, the 10% limitation on deductions for charitable contributions is increased to 25% of taxable income.
Employee retention credit for employers subject to full or partial closure due to COVID-19. The act provides a refundable payroll tax credit for 50% of wages paid by affected employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee from March 13, 2020, through Dec. 31, 2020.
Delayed payment of employer payroll taxes. The act delays payment of the employer’s share of Social Security taxes on employee wages by providing for payment proportionately over the following two years.
Technical amendment regarding qualified improvement property. The act makes a technical correction to the Tax Cuts and Jobs Act to enable businesses, especially in the hospitality and retail industry, to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.
Paycheck Protection Program
What is the Paycheck Protection Program?
Title 1 of the CARES Act provides relief for small businesses and their employees who are adversely affected by the outbreak of COVID-19. The cornerstone provision is the Paycheck Protection Program (PPP). The PPP is an emergency lending facility that is to help small businesses cover their near-term operating expenses and provide an incentive for employers to retain their employees. Loans are made by lenders certified by the Small Business Administration (SBA) and guaranteed by the federal government.
What is the eligibility period?
PPP loans must be made between the date of enactment and June 30, 2020.
What businesses are eligible?
For profit and non-profit businesses with 500 or fewer employees (full and part-time). In the case the company’s industry size standard, based on the NAICS code, allows for more than 500 employees, then the business will be eligible. Eligible small businesses also include sole-proprietors, independent contractors, or other self-employed individuals.
How much can small businesses borrow?
PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months, not to exceed $10 million; the portion of salaries over $100,000 are not counted as payroll costs.
What can PPP funds be used for?
Small businesses that receive loans under the PPP must use loan funds to pay payroll costs, interest on mortgage obligations, rent, utilities or interest on other debt incurred prior to obtaining the loan, however, PPP loan funds are capped at a salary of $100,000 per employee.
Will the loan amount be forgiven?
Principal amounts of PPP loans for the first 8-week period from when the PPP Loan is made, may be forgiven. The amount that may be forgiven cannot exceed the principal amount of the loan. In addition, businesses must keep their employees and pay them at least 75% of the prior-year’s compensation.
Can the payments be deferred?
For principal amounts that exist after any loan forgiveness, payment of the remaining principal, interest, and fee balances can be deferred for at least 6 months and not more than a year.
Useful Tips for Businesses During the Pandemic
- Check your employee retention policies and handbooks. No employer wants to make the decision to lay off employees; however, it is important to understand your rights and obligations and plan in advance.
- Analyze your contracts. Are there terms in existing agreements that can be terminated, delayed, or voided? COVID-19 may trigger a “force majeure” provision leading to performance being halted or otherwise delayed.
- Be wary of staffing decisions. In addition to concerns regarding possible litigation or unemployment claims, your decisions could impact your relief options available under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act).
- Check your insurance policies. Does your current insurance policy have business interruption coverage and does it apply to the COVID-19 pandemic?
- Know your financial options. It is crucial to plan ahead and know all of your legal rights and obligations, particularly forbearance and refinance options. The CARES Act and SBA Disaster Relief loans provide options for businesses to secure financing.
- In addition to the attorneys at Burke Costanza & Carberry LLP, two great resources available to small businesses are SBA.gov and SmallBusinessDisasterSupport.com.
BCC will continue to provide updates for its clients and keep you apprised of any relevant developments. We hope to provide continuous and updated insights and resources to support your business during this challenging time. For more information or questions, please contact Natalie Shrader at email@example.com or Chad Nally at firstname.lastname@example.org.