by Nhit Hernandez firstname.lastname@example.org
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in March 2020, provides financial relief to individuals, businesses, state and local governments during the COVID-19 health crisis. Below are some of the provisions related to businesses and self-employed individuals. Consult with your local banker and check SBA.GOV for updates on funding options.
Paycheck Protection Program (PPP)
The $349 billion appropriated to the PPP was depleted within the first two weeks. Congress passed a bill on April 23, 2020 for an additional $320 billion infusion.
- The PPP is on a first-come, first-served basis.
- Small businesses with fewer than 500 employees, non-profits, tribal businesses, and self-employed persons are eligible.
- If qualified, a business would receive a loan amount equivalent to 2.5 times its average monthly payroll expense.
- The PPP loan is forgiven if the fund is used for payroll costs, mortgage interest, rent and utilities.
i. Forgiveness is based on employee retention or rehiring and maintaining salary levels similar to prior periods.
Economic Injury Disaster Loan (EIDL) and Emergency Advance
- The bill passed on April 23, 2020 provides an additional $60 billion for the EIDL program.
- Employers with fewer than 500 employees, tribal businesses, cooperatives, non-profit organizations, and sole proprietor or independent contractors are eligible.
- If qualified, an advance of up to $10,000 can be granted within 72 hours; repayment is not required.
- This tax credit is available to all businesses, including tax-exempt entities.
i. A business is disqualified if it has received the PPP loan. Self-employed persons are also not eligible.
- Eligible businesses can receive a refundable payroll tax credit on payroll costs.
i. Employers can claim up to $5,000 of credit per employee.
ii. Businesses with 100 or fewer employees can claim wages paid to working or non-working employees. Employers with more than 100 employees can claim the tax credit for wages paid to employees currently not working.
- The CARES Act permits employers to defer the payment and deposit of the employer’s share of Social Security taxes for up to two years; half is due by December 31, 2021 and half by December 31, 2022.
- Self employed individuals may defer 50% of the Social Security tax.
- The Payroll Tax Deferral period is from March 27, 2020 through December 31, 2020.
- A recipient whose Paycheck Protection Program loan is forgiven is ineligible.
The information above does not constitute tax advice. It is intended for information only. Please consult with your professional tax advisor for questions regarding the CARES Act and its potential tax impact.