We hope that everyone is staying safe and healthy through this difficult and challenging time. We continue to service everyone either from our homes or, for a few of us, our offices.
The COVID-19 health crisis is now in its third week and Paycheck Protection Program (PPP) applications are moving at a hectic pace. We are starting to see many of these forgivable loans approved by the SBA. PPP loans are based on 2.5 times your average monthly payroll costs. Loan forgiveness is based on 8 weeks of payments for payroll costs (must be 75% of the loan amount) plus eligible expenses including interest expense, rent, and utilities (make up the other 25%). No payments are due for the first 6 months of the loan, however interest does accrue on the unforgiven portion of the loan. A term of 2 years at 1% interest applies to any remainder not forgiven.
If you were not accepted or eligible for the PPP program, the SBA also offers its long standing Economic Injury Disaster Loan Program (EIDL). Generally businesses with fewer than 500 employees are eligible including sole proprietors, independent contractors and non-profits. The maximum EIDL is a $2 million working capital loan at a rate of 3.75% for businesses and 2.75% for non-profits with up to a 30 year term. Payments on Coronavirus EIDL loans are deferred for one year. Up to $200,000 can be approved without a personal guarantee and no collateral is required for loans up to $25,000. You can apply online at SBA.gov/disaster.
The Families First Coronavirus Response Act (FFCRA) created two different categories of help for those impacted by the coronavirus. They are:
- Emergency Paid Sick Leave pays up to 10 days of pay for those needing to stay home because they are infected themselves by the virus (100% of pay up to $511/day or $5,110 in total) or they are at home caring for someone that has been infected (66.7% of pay up to $200/day or $2,000 in total).
- Expanded Family Medical Leave pays up to 10 weeks of pay for those needing to stay at home due to an infection or child care issue (66.7% of pay up to $200/day or $10,000 in total).
Covered employers qualify for 100% reimbursement through tax credits for all qualifying wages under the above two leave programs. The tax credit amounts reduce the employer federal tax deposits made for the payroll. Reimbursement requests for any excess amounts can be made to the IRS using Form 7200. Expect a two week turnaround time for those funds. Both leave programs require employees to complete a request form in advance. You cannot participate in both the PPP and FFCRA programs using the same payroll costs. If you closed prior to April 1, your employees do not qualify for the FFCRA programs and need to collect unemployment compensation benefits. If you closed your business after April 1 and you were paying someone under the FFCRA programs, you are not expected to continue paying them under the FFCRA provision. They would at that time be eligible for unemployment benefits. Employers with fewer than 50 employees can request an exemption through the Dept. of Labor for both of these programs.
The Coronavirus Aid, Relief, and Economic Security Act (CARES) created a new employee retention tax credit. The tax credit is for employers, including non-profits, who are closed, partially closed, or experiencing a decline in gross revenues by more than 50% in a quarter compared to the same quarter in 2019. For wages paid after 3/12/20 and before 1/1/21 the credit is based on 50% of the compensation paid including employer paid health insurance up to $10,000 in total. Compensation included in paid leave under the FFCRA above is not included. The credit is applied against the employer portion of payroll taxes.
The CARES Act created a payroll tax holiday which defers the due date for the employer portion of Social Security taxes for calendar year 2020 for most employers. Note – employers that receive forgiveness of a loan under the PPP are not eligible for the employment tax deferral. For any eligible employer, the 6.2% employer portion of Social Security taxes that are due with respect to wages paid in 2020 (and the corresponding portion of railroad retirement taxes) do not need to be paid during 2020. Instead, those amounts are due 50% on December 31, 2021, and 50% on December 31, 2022. For self-employed individuals, half of the 12.4% Social Security tax that is due with respect to self-employment income earned in 2020 is likewise deferred to 2021 and 2022.
Please contact your CPA with any questions about these programs. We will get through this together. Stay healthy and safe.