While businesses are carefully watching their cash flow, The CARES Act contains several provisions to provide cash for immediate operating needs:
Provisions to reduce cash flow for expenses:
- Deferral of payroll tax deposits
- Employee Retention Credit
- Although not part of the CARES Act, FHFA is allowing mortgage payment deferrals
- Disaster relief payments to employees
Provisions include the ability to file amended tax returns to receive a refund of taxes paid in prior years:
- Retro-active modification of leasehold improvement depreciation life
- Repeal of elimination of Net Operating Loss Carrybacks
- Modification of Business Interest Limitation
- Corporate Alternative Minimum Tax Credit
Businesses can borrow to fund payroll, rents, mortgage interest, and utilities for an eight week period after obtaining the loan. Funds used can result in loan forgiveness and will not need to be repaid. Remaining loan balance is payable over 2 years at 1% interest.
Eligible borrowers include businesses with less than 500 employees, nonprofit entities, sole proprietorships, independent contractors (gig workers).
Further details here: COVID-19 Paycheck Protection Program and Forgivable Loans Summary
Loans, up to $2 million, are available to businesses with under 500 employees and can be used for non-payroll purposes. Interest rates are 3.75% for profit entities and 2.75% for nonprofits with loan terms (up to 30 years) based on borrower’s ability to pay.
Depending on loan amount, personal guarantees and collateral may be required.
To apply visit: https://covid19relief.sba.gov/#/
Loan advances, up to $10,000 are available to businesses with under 500 employees (including sole proprietorships, independent contractors and self-employed persons).
These grants do not need to be repaid.
View a comparison chart: SBA Relief Programs
Deferral of Payroll Tax Deposits – the employer portion of Social Security tax (not Medicare) can be deferred until Dec 2021 and Dec 2022 with 50% payable each year. Applies to wages paid after March 27, 2020 and before Dec. 31, 2020.
Entities deferring payroll tax deposits under this program cannot have debt forgiven under the Payroll Protection Loan program or other provisions of the CARES Act.
Self-employed taxpayers can also defer payment of 50% of their Social Security tax with this amount being payable equally Dec 31, 2021 and 2022.
Updated 4/3/20: The IRS has released Form 7200 to claim advance payment of tax credits discussed below.
The Employee Retention Credit allows a refundable credit against the employer’s portion of Social Security tax (6.20%) for employers that are forced to close or suspend operations due to the pandemic as long as employees are still paid during the shutdown.
Eligible employers, tested on a quarterly basis, are:
- Any business that was fully or partially shut down due to a government order related to COVID-19
- An entity with less than 100 employees if the business remained open and gross receipts for any quarter in 2020 were less than 50% of gross receipts from the same quarter of 2019. When gross receipts increase to 80% of the comparable prior year quarter eligibility ends that quarter.
Maximum credit is 50% of employee wages and health insurance costs up to $10,000 of such costs per employee
Employers obtaining a Payroll Protection Loan are not eligible for this credit
- Federal Housing Finance Agency: https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Moves-to-Provide-Eviction-Suspension-Relief-for-Renters-in-Multifamily-Properties.aspx
Disaster Relief – Internal Revenue Code Section 139 allows employers to make tax free payments to employees to reimburse for, or pay reasonable and necessary personal, family, or living expenses incurred as a result of a qualifying disaster. Amounts paid cannot be made as income replacement payments. Even though these payments are tax-free to the employee, they are deductible expenses for the employer. If your employees are on reduced salaries, a tax free reimbursement can be beneficial for both the employee and employer. Eligible expenses can include: medication, medical expenses, hand sanitizer, increased child care costs, home office expenses, and nonperishable food/reserves.
Qualified Improvement Property has been given a 15 year depreciation life effective Jan 1, 2018, making it eligible for bonus depreciation. This corrected a technical error in the 2017 Tax Cuts and Jobs Act. Since the change is retro-active to 2018, amended returns may be filed to obtain this benefit.
Net Operating Loss for tax years 2018, 2019, 2020 can be carried back five years to generate tax refunds. Repeals 80% taxable income limitation of net operating losses carried forward to 2018, 2019, 2020.
Business Interest Limitation has been increased to 50% of “adjusted taxable income” income from 30% for tax year 2019 and 2020. For tax year 2020, taxpayers can elect to base the limitation on their 2019 “adjusted taxable income” amount. Special rules apply for partnerships.
Corporate Alternative Minimum Tax Credit can now be claimed on 2018 or 2019 returns rather than being refundable over several years. The Act provides for a procedure to file for a “fast refund” of these credits if election is made to claim in 2018.
If you have any questions about the CARES Act and how it affects your business, please contact us here at ASL.
See also our article on CARES Act – Individual and Employee Provisions
The provisions of the Act are compliance and guidance interpreting the Act is being issued frequently. The above information is based upon information currently available and is subject to change as new guidance is issued.