In the midst of a global coronavirus pandemic, many small businesses are under extreme pressure, forced to adopt new daily practices to keep customers and employees safe, or shuttered completely to control the spread of the virus.
The Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security Act detail unemployment benefits, individual stimulus check amounts, retirement account withdrawals, and loans and relief for small-business owners and the self-employed, including “gig workers.”
Small businesses and self-employed workers have five primary relief valves in these laws.
1. Deferment of existing SBA loans
If you have existing business loans guaranteed by the SBA, they will go into deferment for a six-month period. This means you won’t be required to make payments, and instead, the SBA will pay your lender beginning with the next payment due.
If your current loan is already on deferment, it will enter this six-month grace period after your current deferment has ended.
2. Access to loans and immediate emergency funds
To keep businesses afloat and employees paid, small-business owners and the self-employed are eligible for two loan types: Paycheck Protection Program and Economic Injury Disaster Loans. Portions of the former may be forgivable, and the latter comes with access to a potential $10,000 grant. (More on what’s forgivable below.)
SBA-approved lenders started offering these loans on April 3; some fintech companies and online lenders have since been approved to accept PPP loan applications. Funding for the first round of the $349 billion program ran out on April 15, but an additional $310 billion in funding was signed into law by President Trump on April 24.
Paycheck Protection Program loans are offered at an interest rate of 1%. The maximum loan amount for most people is the lesser of your average monthly payroll costs in the previous year times 2.5 or $10 million.
These loans are to be used for payroll and compensation costs, health care benefits, mortgage interest, rent, utilities, and interest incurred on other existing business debts. Borrowers have six months to one year before they are required to begin making payments. The loans do not require typical fees, personal guarantees or collateral.
Economic Injury Disaster Loans, on the other hand, are offered directly from the SBA. To provide relief as quickly as possible, grants of up to $10,000 are available as an advance within three days of applying for the EIDL.
The EIDL can be transferred into a Paycheck Protection Program loan to take advantage of loan forgiveness. In that case, the advance amount is deducted from the amount of debt eligible for forgiveness.
As of May 4, the SBA is accepting EIDL applications only from agricultural businesses.
3. Debt forgiveness for payroll, operational costs
If you take out a loan under the Paycheck Protection Program, a portion will be forgivable. You will not be required to pay back the loan funds used for payroll, mortgage interest payments, rent and utilities in the eight-week period following origination. Also, this forgiveness amount will not be taxable as gross income, as debt forgiveness sometimes is.
A primary goal of this law is to keep businesses afloat (even if not open) and workers paid, so the forgivable amount may be reduced if you have to reduce either the number of employees you have or the compensation of any employee, and those changes aren’t undone by June 30, 2020.
4. Employer tax credits
If your business is closed to comply with government orders or suffers a decrease in gross receipts of 50% or more compared to the same period last year, you’ll be eligible for a 50% payroll tax credit on wages up to $10,000 per employee. This credit, known as an “employee retention credit,” is not available if you’re using a Paycheck Protection Program Loan.
The Families First Coronavirus Response Act requires some costs in the interest of public and economic health, but the tax credits offset these costs.
- Two weeks of paid leave to quarantined workers or those with COVID-19 symptoms awaiting a diagnosis, capped at 100% of their regular wages or minimum wage, whichever is higher, up to $511 per day or $5,110 over two weeks.
- Two weeks of paid leave to those who are unable to work because they have to care for a quarantined loved one, capped at two-thirds the employee’s regular wages or two-thirds minimum wage, whichever is greater, up to $200 per day and $2,000 over the two-week period.
- Up to 12 weeks of paid leave for employees who must care for their children whose school or child care is closed due to COVID-19. These payments are capped at two-thirds the employee’s regular pay or two-thirds the minimum wage, whichever is higher, up to $200 per day or $12,000 over the 12-week period.
Small businesses may be eligible for an exemption when it comes to leave relating to child care and school closures, if providing that paid leave would put the business in jeopardy.
Because these requirements are expensive, employers and the self-employed are eligible for reimbursement of these payments and the costs to maintain employee health insurance coverage.
Reimbursement, in the form of tax credits, is available for payments that occur between April 1, 2020, and Dec. 31, 2020. Employers can withhold payroll taxes they’d normally submit to the IRS to make up for these leave payments, and/or request accelerated reimbursement directly from the IRS.
Advance payment for both the employee retention credit and the expanded leave requirements can be requested using IRS Form 7200, and faxing that completed form to 855-248-0552. Advance payment for these credits is not available to self-employed workers.
5. Delayed tax payments
Finally, you can delay payroll tax payments normally due between now and Jan. 1, 2021. Half of the delayed taxes would be due on Dec. 31, 2021, and the remaining balance by Dec. 31, 2022.