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The CARES Act: Emergency Relief for Businesses and Individuals
The Coronavirus Aid, Relief and Economic Security (CARES) Act passed the Senate on March 25, 2020 and was signed in to law by Donald Trump on March 27. The CARES Act contains many measures to provide relief to the economy from COVID-19 effects.
Key programs in the bill include:
Small Business Loans: The Paycheck Protection Program (PPP) will offer SBA administration guaranteed loans that are intended to cover the cost continued expenses including payroll, healthcare, rent payments, interest on mortgage payments and other debt obligations and utilities. Loan proceeds, used for these purposes in the 8 weeks following loan origination, qualify for forgiveness. Loans amounts will be not more than 2.5 times average monthly payroll costs or $10 million. These loans will be available to small businesses with 500 or fewer employees including sole proprietors.
Payments on unforgiven portion of loan proceeds can be deferred for up to one year. Loan interest rates will not be more than 4% with terms not more than four years.
SBA Lenders are gearing up for these programd and will begin accepting applications as soon as final guidance from the SBA is issued.
A very good recap of the PPP prepared by the U.S Chamber of Commerce is here: https://www.uschamber.com/sites/default/files/023595_comm_corona_virus_smallbiz_loan_final_revised.pdf
Economic Injury Disaster Loans (EIDL) Grant: Businesses who apply for an SBA Economic Injury Disaster Loan (EIDL) Grant are eligible to receive a $10,000 emergency advance within three days after applying for the Grant. If the Grant application is denied, the applicant is not required to repay the $10,000 advance. Emergency advance funds can be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue losses.
Borrowers may apply for an EIDL grant in addition to a loan under the Paycheck Protection Program, provided the loans are not used for the same purpose and may refinance their EIDL Grant into a PPP loan. Any emergency advance received will be subtracted from the amount forgiven in the Paycheck Protection Program.
Recovery Rebates: The Act includes provision for recovery rebate payments to individual taxpayers. Individuals will receive non-taxable tax credits of $1,200 ($2,400 for joint filers) plus $500 for each qualifying child. The credit is phased out for taxpayers with adjusted gross income above $150,000 (for joint filers), $112,500 (for heads of household), and $75,000 for other individuals and is not available to nonresident aliens, individuals who can be claimed as a dependent by another taxpayer, and estates and trusts. Rebates will be determined using a taxpayer’s most recently filed income tax return and will be recalculated on taxpayers’ 2020 returns. Taxpayers will reduce the amount of the credit available on their 2020 tax return by the amount of the recovery rebate they receive.
Employee Retention Tax Credit provides eligible employers with a refundable payroll tax credit for 50% of the wages paid by employers during the COVID-19 crisis. This credit is calculated using wages paid between March 13, 2020 and December 31, 2020 and is available to employers whose Operations were fully or partially suspended due to a COVID-19 related “shut-down order,” or whose Gross receipts declined by more than 50% when compared to the same quarter in the previous year. The tax credit is provided for the first $10,000 of qualified wages (per quarter) paid to an eligible employee, which may include the employer’s contribution to the employees’ health insurance costs but will exclude any amounts that the employer already received a tax credit for under EFMLA or EPSL. For employers with 100 or fewer employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. This credit is not available to businesses that receive SBA Paycheck Protection Program loans.
Delayed Employer Payroll Taxes The Act also provides that employers may defer payment of their portion of Social Security taxes. Any deferred payroll taxes would be required to be paid over the next two years – with half of the owed amount being required to be paid by December 31, 2021, and the remaining half by December 31, 2022.
Retirement Plan Withdrawals Relief The 10% penalty imposed on early COVID-19 related distributions from qualified plans including IRAs and 401ks has been waived for distributions up to $100,000 taken between January 1, 2020 and December 31, 2020.
401k loan limits have been increased to $100,000 for 2020.
Retired Minimum Distributions rules are temporarily suspended for 2020.
Admin | 03/28/2020