As a follow up to last week’s information regarding individual implications of the CARES Act, here are some key provisions and information for businesses.

Deferral of Payroll Taxes

  • 50% of the payroll taxes that would be due in 2020 are deferred until December 2021, and the other 50% is due by December 2022.
  • This applies for self-employed people as well, just in an employer-equivalent capacity. It ends up being 25% of 2020 self-employment taxes due December 2021, and the remaining 25% due December 2022.
  • There are some exceptions to these provisions for employers who are using other SBA CARES Act loans, so please make sure you are on the same page with your accountant.

Paycheck Protection Program

  • Loans are offered through the SBA and can be partially forgivable. There are specific parameters that define what amount of the loan would be eligible for forgiveness. Any debt that is forgiven is not included in taxable income for the year.
    • In order to qualify, the business must at least maintain the same number of employees in the eight weeks following the date of origination. The amount forgivable gets reduced if employees are let go, or if lower compensated employees’ pay is reduced by more than 25%.
  • The maximum maturity of 10 years loan must be necessary due to economic conditions caused by COVID-19 and are up to the lesser of 2.5 times average monthly payroll from previous year or $10,000,000.
    • $100,000 annual cap per employee, overage is excluded.
  • Proceeds can be used for a wide variety of things including payroll costs, rent, mortgage interest, and group health insurance.
  • Must apply through existing approved or otherwise certified SBA lenders (i.e. your bank). Specific admin process and qualification also seems to be bank specific.

Economic Injury Disaster Loan

  • This is also offered through SBA and can be applied for online.
  • Offers an emergency advance up to $10,000 that is not treated as income and does not have to be paid back.
  • Loan is low interest and can be up to $2,000,000. There are also deferment options for up to 4 years.
  • Available to sole proprietors as well as private non-profits. Application is on a first come first served basis.

 

Employee Retention Credit

  • Designed to be an incentive to encourage businesses from making further layoffs. Eligibility is strict and the business cannot be receiving a covered loan and must have had operations at least partially suspended.
  • Revenue during a 2020 quarter must be less than 50% of the same 2019 quarter.
    • A company that is materially impacted, but not to the tune of 50% compared to the previous year’s quarter will not be eligible.
  • Credit can be continuous for the calendar year assuming the business continues to meet the set parameters.

Other MISC Tax Implications

  • Net Operating Losses in 2018-2020 are allowed to be carried back up to 5 years (this was recently only allowed forward due to TCJA rules).
  • Net Operating Losses are further allowed to offset up to 100% of taxable income instead of the TCJA’s 80% rule.
  • Non-corporation income limits for cumulative losses are also repealed for 2018-2020. If you happen to have had losses suspended, reach out to your accountant to see if filing an amended return is advised.
  • 100% credit for AMT carryovers.
  • Businesses can elect to increase the business interest limitation from 30% to 50%.

For more information, please visit IRS.gov.