As life continues in this time of uncertainty, while updates regarding the COVID-19 pandemic make headway, Small Business Owners should take notice of the following action items they could implement to protect their employees, and gain the support available from the CARE Act.
Employer Payroll Tax Deferral
The Act allows for a delay of payment of employer payroll taxes. The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they are otherwise responsible for to pay to the federal government with respect to their employees. All employers are responsible for paying a 6.2% Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. For self-employment taxes, 50% will not be due until those same dates.
Employee Retention Credit
The Act provides a refundable payroll tax credit for each calendar quarter, beginning March 31, 2020 through Dec. 31, 2020, equal to 50% of wages paid to employees during the outbreak by employers whose operations were fully or partially closed due to a COVID-19-related shut-down order, or whose gross receipts declined by more than 50% compared to the same quarter in the prior year. The credit is based on qualified wages paid to employees and provided for the first $10,000 of compensation paid to an eligible employee, including health insurance. Taxpayers are not eligible for this credit if they take a small business interruption loan.The U.S. Small Business Administration (SBA) website provides more details on funding options.
Paycheck Protection Program
The Paycheck Protection Program partially rolls out today, April 3rd. The Act provides a provision to help small businesses (fewer than 500 employees) impacted by the pandemic and economic downturn to make payroll and cover other expenses from February 15 to June 30. Small businesses may take out loans up to $10 million -- limited to a formula tied to 2.5x payroll costs during the one-year period before the date on which the loan originates and can cover employees making up to $100,000 per year. The loan proceeds can be used to pay employee salaries, retirement benefits, payment of state or local taxes, mortgage payments, rent and utility payments. Loans may be forgiven if a firm uses the loan for eligible payroll, interest payments on mortgages, rent, and utilities and would be reduced proportionally by any reduction in employees retained compared to the prior year and a 25% or greater reduction in employee compensation. Any loan amounts remaining after this forgiveness is applied and will be carried forward with a low interest rate with an option to defer payments of interest. As many businesses have already laid off workers as a response to the pandemic, the program can be retroactive, with the covered loan period running from Feb. 15 to June 30, 2020, which allows previously laid off or furloughed employees to be returned to payrolls.
More information regarding the Paycheck Protection Program is available.
Emergency Economic Injury Disaster Loan (EIDL)
The Small Business Administration provides loans to pay fixed debts, payroll and other expenses that cannot be paid due to a disaster's impact. Terms are determined on a case by case basis but can off payment terms up to 30 years and a low interest rate. The act establishes an emergency grant to allow an eligible entity who has applied for an EIDL to request an advance of up to $10,000, which must be distributed in 3 days after the application is received. The advance payment may be used for providing paid sick leave to employees, maintaining payroll, meeting increased costs to obtain materials, making rent or mortgage payments, and repaying obligations that cannot be met due to revenue losses. Applicants are not required to repay the advance payment, even if they are subsequently denied the EIDL. For more information on loan forgiveness, please see the COVID-19 Economic Injury Disaster Loan Application.
Self-Employed Get Sick and Family-Leave Tax Credits
While self-employed people don’t get the same sick and family leave benefits available to other small business employees, the Families First Coronavirus Response Act provides self-employed people with two refundable credits tied to the amount of time they can’t work because of the Coronavirus outbreak. The sick-leave credit compensates self-employed people for up to 10 days away from their business for coronavirus-related reasons. And the family-leave credit covers up to 50 days away from work for any reason that would qualify an employee for coronavirus family leave. There are limits based on self-employment income, but it behooves any self-employed business owner to be aware of these options.