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Business Owners: What the COVID-19 Relief Legislation Means for You

April 29, 2020

The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Families First Coronavirus Response Act and the Paycheck Protection and Health Care Enhancement Act contain important provisions to help businesses cover critical operating costs and provide tax relief as a result of the coronavirus pandemic. Here's a summary of key provisions for businesses, as well as supplementary resources.

Paycheck Protection Program (PPP)

The PPP provides federally guaranteed loans to small businesses to cover business operating costs for 24 weeks. Significantly, these loans may be fully forgiven (including interest) if the small business uses the loan proceeds for payroll costs (including benefits), mortgage interest, rent and/or utilities, while maintaining their staff and payroll during the crisis.

While the CARES Act originally allocated $349 billion for the Paycheck Protection Program, the funds were exhausted within three weeks. An additional $310 billion in funding was authorized by the Paycheck Protection Program and Health Care Enhancement Act, which was signed into law on April 24, 2020.

Businesses interested in securing a loan through the Paycheck Protection Program should immediately contact their Small Business Administration lender, federally insured depository institution, federally insured credit union or Farm Credit System institution.

Resources:

Employee Retention Tax Credit

The CARES Act provides a refundable payroll tax credit up to $5,000 per eligible employee for businesses impacted by COVID-19.

  • The credit is available to employers whose:
    1. Operations were fully or partially suspended due to a COVID-19-related shutdown order
      or
    2. Gross receipts declined by more than 50% when compared to the same quarter in the prior calendar year
  • If there were an average of 100 or fewer full-time employees during 2019, the business may claim the tax credit on the wages of all employees.

Resource:

Economic Injury Disaster Loans (EIDL)

The CARES Act expands eligibility for access to Economic Injury Disaster Loans for businesses with 500 or fewer employees, including Tribal businesses, cooperatives, and ESOPs, or any individual operating as a sole proprietor or an independent contractor during the covered period (Jan. 31, 2020 to Dec. 31, 2020). The Paycheck Protection Program and Health Care Enhancement Act clarifies that agricultural businesses with 500 employees or fewer can also access loans from the program.

The Small Business Administration (SBA) has announced that the EIDL program for advances is closed. It is unclear at this point if Congress will be providing additional funding. The SBA is still processing applications for EIDL loans.

Resources:

Sick and Family Leave Tax Credits

The Families First Coronavirus Response Act establishes credits for sick and family leave costs for businesses with fewer than 500 employees.

  • Businesses are eligible to receive refundable tax credits to help offset the costs associated with providing sick and family leave.
  • Refundable credits are also available for self-employed individuals.

Resources:

Deferral of Payment of Employer Payroll Taxes

The CARES Act permits employers and self-employed individuals to defer payment of the employer share of the Social Security tax incurred from March 27, 2020, through Dec. 31, 2020. Deferred taxes must be repaid over two years, with half the amount due by Dec. 31, 2021, and the remaining due by Dec. 31, 2022.

Additional Economic Relief Measures for Businesses in the CARES Act

The CARES Act includes other economic relief for businesses, including the following:

  • Immediate tax deductions for the costs of qualified improvements to property
  • Relaxed limitation on a business' use of net operating losses
  • Relaxed limitation on the amount of interest expense businesses are permitted to deduct
  • Accelerated ability of businesses to recover alternative minimum tax (AMT) credits
  • Increased charitable deduction limit for corporations from 10% to 25% of taxable income

Understand Which Provision(s) You Can Use

It's important to note that certain provisions described above cannot be used in conjunction with others. Here are some considerations when determining which programs to use:

  • The same wages cannot qualify for both the sick and family leave tax credits and the Paycheck Protection Program.
  • The same business costs cannot be covered by both the Paycheck Protection Program and Economic Disaster Loans.
  • The same wages cannot qualify for both the sick and family leave tax credits and the employee retention tax credit.
  • You must choose between the Paycheck Protection Program or the employee retention tax credit and deferral of payment of employer payroll taxes – you may not choose both.

Benefits generally limited to employers with up to 500 employees (also available to self-employed individuals) include:

  • Sick and family leave tax credits*
  • The Paycheck Protection Program
  • Economic Injury Disaster Loans (EIDL)

Benefits not limited by employer size (generally also available to self-employed individuals) include:

  • An employee retention tax credit
  • The deferral of payment of employer payroll taxes.

Talk to Your Financial Advisor

Work with your Edward Jones financial advisor to consider these key aspects of the COVID-19 relief legislation as part of your broader financial strategy. As with any decision that could involve tax implications, consult with your tax professional on considerations and impacts to your specific situation. Your financial advisor can partner with him or her to provide additional financial information that can help in the decision-making process.

*Applicable for employers with fewer than 500 employees.

Important Information:

These materials are for general education only and any specific questions related to their individual circumstances should be discussed with their personal financial, tax or legal adviser, as appropriate.

Edward Jones has not independently verified and is not responsible for third-party content.

More resources:

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