The Coronavirus Aid, Relief, and Economic Security Act (CARES) (P.L. 116-136), signed into law March 27, features several different relief programs to help businesses stay afloat, but some of them are mutually exclusive, meaning business owners need to understand each one.
Like you, our firm is monitoring the situation and awaiting guidance from the IRS to implement many of these provisions. In addition, our firm needs to await software companies to make coding changes to allow us to process some of these provisions for our clients.
SBA LOAN – The $350 billion expansion loan program administered by the Small Business Administration is focused on keeping businesses afloat. The loans can be used to cover a range of employee-related needs, including salaries and paid sick leave, and businesses with up to 500 employees can receive a maximum of $10 million. If the business retains its employees over an eight-week period after the date of the loan origination, the repayment of the loan can be forgiven, which essentially turns the loans into a grant program. Small Business Guide and Checklist
EMPLOYEE RETENTION CREDIT -- This is a refundable payroll tax credit for 50% of wages paid by an employer whose operations have been affected by a COVID-19 suspension order, or whose gross receipts have declined by more than 50 percent compared with the same quarter the previous year.
For employers with 100+ employees, qualified wages include those paid to employees who are not working because of COVID-19-related circumstances.
For employers with 100 or fewer employees, all employee wages qualify for the credit, including healthcare benefits. There is a $10,000 cap on compensation.
However, employers that claim the retention credits are not eligible for the SBA loans. Nor can employers claim the work opportunity tax credit if they claim the retention credit. This is especially important for restaurant owners and retailers to consider.
PAYROLL TAX HOLIDAY -- The employer payroll tax holiday that lets employers defer the employer share of 2020 payroll tax, paying it back in 2021 and 2022. This is essentially an interest-free loan. However, employers who receive forgiven SBA loans are not eligible for this deferral.
There is a modification to the 2019 tax law for Net Operating Loss Carrybacks and expanded interest deductions and a technical correction to the “retail glitch.” This means some businesses that already field an income tax return in 2019 may have an opportunity to benefit from an amended filing. Again, please be patient as this evolves.