Pandemic relief programs for businesses
**Federal and state programs created in response to the COVID-19 pandemic are changing fast, and updates will be made here as more information is made available and are current as of the publishing date.**
The ShindelRock tax professionals have been working diligently to monitor, analyze, and apply the many evolving policies affecting businesses and individuals during the COVID-19 crisis. None of us has ever experienced a climate with a faster-moving, wider ranging set of tax changes and new assistance programs, but you can trust us to understand how they might apply to your personal and/or business financial futures and guide you along each new step in this unprecedented era.
At this time we recommend that business owners/managers consider the following steps. The goal is to apply for as much as possible, and then once accepted and any funds are ready to be advanced, we can discuss whether or not to take the funds from a particular program, as some of them will exclude the ability to use other programs and/or tax credits.
- Apply online for an Economic Injury Disaster Loan – Consider an EIDL loan. As discussed in #2 below, up to $10,000 of this loan can be waived as a grant. A total of up to $2,000,000 can be requested to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses. You can apply for this loan even if you have access to other credit. However, loan amounts over $25,000 requires collateral, if available, for the excess.This loan is a lower interest loan with payments deferred for a time frame yet to be determined. This loan is available to businesses with less than 500 employees, and includes self-employed businesses and independent contractors. You can apply online here: SBA EIDL application page. You can later refinance this loan into a PPP loan (see #3 below), or apply for and receive both types of loans as long as there is no duplication in the use of the funds. See additional guidance for EIDL loans: here. For clients so far, the application process has taken about 15 minutes, but you will need a few pieces of financial data: gross receipts and cost of goods sold for the 12 months ended 1/31/20, and number of employees at 1/31/20.
- Apply for an Emergency Economic Injury Grant of up to $10,000: Funds were to be awarded within three days, but there have been delays due to the volume of requests. It is expected that grants will start to be distributed the week of April 7, and will now be limited to $1,000 per employee up to a total grant of $10,000. You first apply for an loan under the EIDL (#1 above) and then request it as an advance at the very end of the application. The advance (grant) does NOT need to be repaid. Note that grant funds are limited and are awarded on a first come first serve basis. This grant is available to businesses with less than 500 employees, and includes self-employed businesses and independent contractors. See additional guidance for the EIDL grant here.
- Reach out to your bank and apply for a Paycheck Protection Program (PPP) Loan. This program is to provide cash-flow assistance to businesses (with less than 500 employees) mainly with their payroll costs. The portion of the funds used to pay for eligible expenses are forgiven and do NOT have to be repaid (and the forgiveness is not considered taxable income). Employers, as well as sole proprietors, independent contractors and self-employed individuals are eligible. There is no collateral or personal guarantees required, but you must certify that the loan is necessary to support ongoing operations due to the uncertainty of current economic conditions, the loan will be used to retain workers and pay eligible expenses (discussed below), you do not have an application pending for (or have not received) a loan that will be used for the same purpose and amounts applied for under this PPP program (except for EIDL loans discussed in #1 above). You may apply for a PPP loan if you have applied for an EIDL loan, as long as there is no duplication in the uses of funds. Click on these links for additional guidance here and here and PPP application here. Note if this program is used, the payroll tax credits discussed in #4 are not available.
Maximum loan amount – The maximum amount is 2.5x your average monthly payroll costs during the 12 months prior to the loan date (or during Feb 15, 2019 thru June 30, 2019 if seasonal business), up to a total max of $10 million.
Payroll costs for employers includes: wages (including vacation pay and severance pay) but not in excess of $100,000 in one year when prorated, health insurance premiums, other group health care benefits, employer retirement contributions, and state and local payroll taxes.
Payroll costs for sole proprietors, independent contractors and self-employed individuals includes: compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation but not to exceed $100,000 in one year when pro-rated.
- Loan forgiveness – the amount that can be forgiven is calculated from the following eligible costs incurred during the 8 week period after the loan proceeds are disbursed: payroll costs (the types discussed above), rent paid per a lease, utilities, interest on debts that existed before Feb. 15, 2020. No more than 25% of forgiveness will be allowed for non-payroll costs. There will be an application process for the forgiveness which will require certain documentation. Any $10,000 EIDL grant (see #2 above) reduces the amount of the PPP loan that can be forgiven.Note that the forgiven portion is reduced if there is a reduction (from the base period in 2019 versus the 8 weeks after the loan disbursal) in the number of employees or a reduction of more than 25% in wages paid to employees. However, employers have until 6/30/20 to fully reinstate employees to their full-time employment and wage levels for any changes made between 2/15/20 and 4/26/20.
- Loan Terms: The portion of the loan not eligible for forgiveness is subject to an interest rate of 1.0%, a repayment term of 2 years, zero loan fees, no prepayment fees, no SBA fees, and possibly a lending bank fee (but there will be a cap set by the SBA). Payments are deferred for 6 months, but interest will accrue.
- Reach out to your payroll provider:
- Paid Sick Leave or Paid Medical Leave – For any leave taken between April 1, 2020 and Dec. 31, 2020, you need to determine if any employee qualifies for required sick pay or medical leave pay due to COVID-19 under the Families First Coronavirus Response Act. Any required payments under this act is reimbursed to the employer through refundable payroll tax credits. You will need to coordinate with your payroll provider if this applies to you. See our summary of the provisions here: Paid Sick and Paid Medical Leave explained. Michigan’s Stay at Home Order does NOT qualify as a state quarantine or isolation order which is one of the qualifying conditions for Paid Sick Leave. Also see here for required notification that must be provided to employees: Employee Notification.
- Delay payment of the employer Social Security payroll tax (the 6.2% portion) – Reach out to your payroll service provider regarding the ability to defer payment of the employer’s portion of the Social Security payroll tax for all of 2020. The deferred amount is repaid in 2 equal installments due on 12/31/21 and 12/31/22. You cannot utilize this deferral if taking advantage of the PPP program above.
- Employee Retention Payroll Tax Credit – Reach out to your payroll provider regarding a refundable payroll tax credit of up to 50% of each employee’s wages paid from 3/13/20 through 12/31/20 (but capped at the first $10,000 of wages and health insurance benefits paid for the employee). Your business is eligible for the credit during the calendar quarter (i) your operations were fully or partially suspended due to a COVID-19 related shut-down order, or (ii) gross receipts declined by more than 50% when compared to the same quarter last year until gross receipts go above 80% of a comparable quarter in the prior year. If you had more than an average of 100 full-time employees in 2019, the credit only applies to wages paid to employees not working. You can also elect, on a quarterly basis, to not receive the credit. Any wages paid under the sick or family leave are not eligible for this credit as well as wages paid to related parties. You cannot use this credit if taking advantage of the PPP program above, or any loan where payroll costs are forgiven. Click here for a link to IRS’ FAQs regarding the Employee Retention Payroll Tax Credit.
- State and local grants – You should consider reaching out to your bank regarding state/local grants or loans that may apply, as well as, any industry specific programs that may apply.
- Helpful Q&A – See this link for helpful Q&As regarding many of the CARES Act provisions: CARES Act Q&A.
This is just the high-level review of some of the programs that may be applicable to businesses at this time, so please reach out to a ShindelRock tax professional if you would like to discuss the details of these programs further or if you need any assistance in implementing any of them.