On March 27, the $2 trillion coronavirus relief law—also known as the CARES Act—was passed by the federal government to help small businesses owners and their employees get through the tumultuous time brought on by the COVID-19 outbreak.
The legislation is robust, with several strategies aimed at providing aid, relief and economic security for people impacted by forced closures and social distancing. What does that mean for small business owners? What about their employees?
In this article we’ll break down the most important factors small business owners and employees need to know about the CARES Act, including payroll tax delay, expanded unemployment eligibility, and more.
Remember, this is not official legal advice. If you have any questions or concerns about the CARES Act, be sure to consult an employment attorney.
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First, we’ll take a look at how impacted employees can benefit from the provisions laid out in the package.
As a result of the CARES Act, adults who pay their taxes and earn up to $75,000 will receive a one-time stimulus paycheck of $1,200. For married couples, the threshold is $150,000, and the paycheck will be $2,400. Families will receive an extra $500 for each child under the age of 17.
The numbers are based on the 2019 adjusted gross income, but if you haven’t filed your 2019 income tax return, it will be based on the 2018 adjusted gross income.
The check will come in the form of direct deposit (as long as the IRS has your bank information) and you can expect it around April 16, 2020. If the IRS does not have your bank information, the Treasury Department said they are working on “a web-based portal for individuals to provide their banking information” according to a press release.
If the IRS does not have your information for a direct deposit, your check will be sent via mail to the address listed on your most recent tax return, but it could potentially take months.
One of the more notable provisions in the stimulus bill is Pandemic Unemployment Assistance, which expands unemployment insurance benefits to three groups that don’t normally qualify for financial relief: gig workers, independent contractors, and the self-employed.
Basically, anyone who is unable to work due to coronavirus can receive benefits, including employees who were laid off, became sick, or could not work because they had to take care of a sick family member.
If you are receiving unemployment benefits through your state, you can receive an additional $600 a week from the federal government—on top of what you are receiving from the state—from now until July 31, 2020.
For example, if you are receiving the national average of $340 per week from your state, your new weekly pay will be $940.
Another 13 weeks of unemployment insurance time has also been added. If you are currently receiving benefits and are nearing your state’s maximum number of weeks, you would get an extension, and if you are just now filing for unemployment, you’ll be able to collect benefits for a longer period of time.
There are several provisions in place that also help small business owners handle a sudden loss in revenue. Let’s break down those benefits.
Included in the coronavirus aid package is the $350 billion Paycheck Protection Program, which lends up to $10 million to businesses with fewer than 500 employees.
The forgivable loans program is tied to payroll costs and covers employees earning up to $100,000 per year. You can apply for 2.5 times your cost of payroll, and the funds are meant to be used for payroll and other operational expenses between the timeframe of February 15 and June 30, 2020.
According to the Treasury Department, the loan will be forgiven if:
You can apply for the program through any lender approved by the Small Business Administration, and you can find one of those lenders by using the SBA’s Lender Match Tool.
Small businesses and sole proprietorships can apply for these loans through existing SBA lenders starting Friday, April 3rd. See this Information Sheet for Borrowers published by the Department of Treasury for more information.
One last note: Congress is moving quickly with various bills but the implementation details may have not caught up yet so expect more clarity as more details emerge in the coming days and weeks.
The package also expanded the SBA Economic Injury Disaster Loan Program in an effort to offer more financial support to businesses experiencing a loss in revenue.
Instead of only offering the loans in areas where a federally declared disaster occurs, companies in all 50 states, Washington, D.C. and U.S. territories can apply for a disaster loan, and can receive a $10,000 advance.
Businesses can receive loans of up to $2 million, and the loan comes with a 3.75% interest rate for businesses and 2.75% for nonprofits. If you receive an EIDL loan before the Paycheck Protection Program becomes available, you can refinance your existing loan into a loan through the PPP, which might make the loan eligible for forgiveness.
Once you apply for the loan—which you can do by visiting this site—you can request the advance to cover costs while waiting to receive the rest of the funds. The SBA is required to distribute the advance within three days of approving the loan application.
It’s also important to know that you can apply for both an EIDL loan and a PPP loan—but you must use the two different buckets of funds for different purposes. For example, if you use your EIDL loan to cover your employees’ wages, you cannot use your PPP loan to cover payroll for those same staff members.
All businesses that were impacted by COVID-19 and had a 50% decrease in gross receipts are eligible for a 50% refundable payroll tax credit against the employer portion of Social Security tax on wages paid up to $10,000 during the pandemic period.
For businesses with more than 100 employees, the credit can be claimed for team members who are not currently working because of the crisis, but are being retained. For businesses with 100 or fewer employees, the credit can be claimed for all employees.
Visit the IRS’ page on the employee retention credit to learn more about how to claim it.
Speaking of the employer portion of Social Security tax (which is normally 6.2%), you may not need to pay the amount that would normally be due from March 27 to December 31, 2020 for now.
If you choose to delay your payment, the CARES Act allows you to deposit 50% of the deferred taxes on or before December 31, 2021, and the remaining amount by December 31, 2022.
The provision applies to all employers, regardless of size. However, you are not eligible for the relief if you receive an SBA loan that is forgiven.
As parts of the act are expanded upon or further explained, we’ll update this article with any more information that may be of importance to you as a small business owner or employee impacted by this trying time.
Remember, if you have any questions or concerns about the federal government’s coronavirus aid relief package, it’s best to consult with an experienced attorney or financial adviser on what your best options are as a small business owner or employee.