On March 27, 2020, Congress signed the CARES Act Help Coronavirus Aid, Relief, and Economic Security Act. In general, it aims to help American workers, families, and small business owners by giving them funds they can use in their businesses and in paying their mortgages, utilities, or rent.
While the government releases more information to clarify the specifics surrounding this law, we will break down some of its inclusions and provisions and howCARES Act Help can affect your clients or small business owners.
1. Assistance for Small Businesses: The Paycheck Protection Program
Any business—including sole proprietorships, independent contractors, or self-employed individuals—that has 500 employees or less is qualified for a Paycheck Protection Program Loan. This loan is only meant for business-related concerns CARES Act Help due to COVID-19, and it is an additional qualification for the program. You also need to ensure that the loan will not be used for allowable purposes and that your client will not receive any duplicate funds for the same uses from another small business administration program.
Allowable purposes could be any of the following:
- Eligible payroll, such as employee salaries, paid medical or sick leave, and others
- Mortgage interest
- Rent payment
- Pre-existing debt payment
- Utility payment
In short, the loan should solely be used for business intentions. The Paycheck Protection Program is intended to be a low-interest loan with the maximum amount of $10 million, and in some cases, the loan is forgivable. That means that CARES Act Help if your client uses the loan proceeds for any of the allowable purposes mentioned above within the first 24 weeks (with at least 60 percent used for payroll and 40 percent for other expenses), the loan balance will be reduced, and they will not be taxed on the forgiven amount.
Initial Issues Encountered
Congress had authorized up to $349 billion for this loan program. However, this amount lasted just a few days. As a response to that, Congress passed the Paycheck Protection Program and Health Enhancement Act in late April. This law provided another $310 billion for the loan program.
In its first wave, the program received a lot of criticism that stated only larger and wealthier companies had accessed the first round of PPP loans. However, the data for the second round shows that more small businesses finally got access to the funds.
2. Small Business Administration – Economic Injury Disaster Loan
SBA’s Economic Injury Disaster Loan is another loan option for small businesses. SBA also works with the states to provide low-interest federal disaster loans to small businesses that have experienced substantial economic injury from the COVID-19 outbreak.
For SBA’s assistance, the maximum allowable loan amount is $2 million. Those eligible can use the fund for paying off their debts, payroll, and other bills that they cannot pay due to the pandemic.
3. Unemployment Compensation
Traditionally, self-employedor independent contractors could not claim any unemployment compensation from the government. The CARES Act has changed this, and it currently allows these individuals to claim federal unemployment compensation for up to 39 weeks, enough to take them until the end of 2020.
Like any other setup, there are a few preconditions. For example, if they can telework or work from home with the internet, email, and phone, they are considered ineligible. However, if they are forced to close their business, they can be qualified.
Here are the three benefit components of the compensation:
- For those who already qualify: $600 of supplemental state-paid unemployment compensation
- For those who are generally not eligible for unemployment compensation: $600 plus the regular state unemployment rate provided by the pandemic unemployment program
- An extension of unemployment compensation by up to 13 weeks on top of the standard state timeline
Note that the length of offeredunemployment benefits for each state varies. For more information, check out your client’s state’s unemployment website.
4. Internal Revenue Service – Employee Retention Credit
If your client wants to retain its employees but does not want to take out a loan, the government has some assistance.
If your client has paid their employees from March 12, 2020, to December 31, 2020, and their business operations are impacted in any way by COVID-19, they may claim a refundable tax credit on their 2020 tax return. They can also receive this credit in advance without waiting to file for a 2020 tax return. They only need to meet at least one of the following qualifications:
- Their business operations are partially or fully suspended due to COVID-19
- Their gross receipts decreased by more than half (50 percent) when compared to the same quarter in 2019
There are also a few stipulations to the credit:
- Their business cannot participate in any of the loan programs mentioned above
- Their credit amount may be limited if their business took credit for paid medical or family leave provided in the Tax Cuts and Jobs Act
- The credit amount is 50 percent of the qualified wages they paid to their employees while unable to work because of the pandemic
- The maximum amount of credit per employee is $5,000 if their business has 100 or less full-time employees
Conclusion
These are only four of the many provisions the government has provided through the CARES Act. If your client is a small business owner who still has not applied for any of these, help them choose which one they are qualified for and benefits their business and employees the most.
If you need professional tax preparation software to make all the computation and decision-making easier for your clients, Keystone Tax Solutions is here to help. We offer a one-hundred-percent cloud-based solution that you can operate anytime, anywhere, and on any device.
