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The CARES Act Benefits for Businesses

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed by President Trump on March 27th, offers several relief options for struggling businesses during the COVID-19 pandemic. Some options preclude the ability to participate in other options, so reviewing everything available and identifying the best choices for your business is critical. After reviewing the 880-page CARES Act, the following is a highlight of some of the relief options that specifically pertain to businesses.

Small Business Debt Relief Program

  • This program provides immediate relief to small businesses that currently have non-disaster SBA loans, in particular 7(a), 504, and microloans. The SBA will cover all loan payments on these SBA loans including principal, interest, and applicable fees for 6 months. This relief is also available for new borrowers that take out a loan by September 27, 2020.
  • Disaster loans are not eligible for this provision.

Paycheck Protection Program (PPP)

  • The Paycheck Protection Program (PPP) is a new addition to SBA’s existing 7(a) loan program. The Paycheck Protection Program gives small businesses the ability to receive cash in the form of a loan, which can ultimately be forgiven if certain requirements are met.
  • No collateral or personal guarantees are required to obtain the loans.
  • How much you can borrow and conditions for the forgiveness are outlined in our Paycheck Protection Plan Q&A.

Economic Injury Disaster Loans & Emergency Injury Grants

  • Unlike the Paycheck Protection Program (PPP) loans, this specific area of the law is considered a grant and does not have to be repaid under any circumstances.
  • These are emergency advances of up to $10,000 to small businesses and private non-profits available within 3 days of applying.
  • The advance may be used for the following:
  • Payroll, sick leave, increased production costs due to supply chain disruptions, or pay for business obligations including debts, rent, and mortgage payments.
  • These grants are available from January 31, 2020 – December 31, 2020.
  • An application can be completed directly at https://disasterloan.sba.gov/ela/.

Employers electing to take small business interruption loans under PPP, the following benefits are not available if any loan amount is forgiven, so it’s important to evaluate which option best fits your business:

Employee Retention Credit for Employers Subject to Closure Due to COVID-19

  • For eligible employers, a credit is available against employment taxes equal to 50% of the qualified wages paid to each employee, subject to a limit of $5,000 credit per employee for 2020.
  • To be considered an eligible employer for this credit, you must meet the following:
  • Have been a business that was at least partially suspended during a calendar quarter due to orders from an appropriate governmental authority.
  • Have any quarter in which gross receipts were less than 50% of gross receipts from the same quarter in the previous year.
  • Credit eligibility ends in the quarter in which gross receipts exceed 80% of gross receipts for the same calendar quarter in the prior year.

Payroll Taxes Payment Delay Allowed

  • The employer portion of any Social Security taxes ordinarily due between March 27, 2020, and January 1, 2021 (listed as the “payroll tax deferral period”) can be deferred as follows:
  • 50% of the employer portion of any Social Security taxes are deferred until December 31, 2021.
  • The remaining amount of the employer portion of any Social Security taxes deferred until December 31, 2022.

The following provisions are NOT contingent on whether a business had a loan amount forgiven, and can be utilized by any small business:

Deferral of Self-Employment Taxes

  • Employer portions of self-employment taxes attributable to Social Security for the period beginning on March 27, 2020, and ending before January 1, 2021, can be deferred as follows:
  • 50% of the employer portion of any Social Security taxes are deferred until December 31, 2021.
  • The remaining amount of the employer portion of any Social Security taxes deferred until December 31, 2022.

TCJA Net Operating Loss “NOL” Carryback Limitation Removed

  • The Tax Cuts and Jobs Act of 2017 (TCJA) generally eliminated businesses’ ability to carryback any net operating loss.
  • The CARES Act generally removes this limitation for NOL’s arising in a taxable year beginning after December 31, 2017, and before January 1, 2021.
  • These eligible losses can now be carried back to each of the five taxable years preceding the taxable year of such loss.

TCJA NOL 80% Carryforward Limitation Removed

  • The Tax Cuts and Jobs Act of 2017 also generally eliminated the ability to offset taxable income of over 80% with carryforward NOL’s and the CARES Act removes this limitation with respect to any NOL’s beginning before January 1, 2021, and these losses can be used to fully offset income.

Business Interest Deduction Increased to 50%

  • Under the TCJA, business interest expense deductions were limited to 30% of a company’s adjusted taxable income and the CARES Act increases that interest expense deduction to 50% for any tax year beginning in 2019 or 2020.
  • A company can also use its 2019 income for calculation purposes for the 2020 deduction, which would likely be higher.
  • This allowance does not apply to partnerships.

As new developments become available around the CARES Act, we will be sure to keep you updated. Many of these provisions have important qualifiers/disqualifiers in addition to record-keeping requirements. If you believe any of these provisions apply to your specific situation, please do not hesitate to reach out to our firm.

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