On Friday, March 27, 2020, the President signed into law, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act (H.R. 748), also referred to as the Stimulus Package. The CARES Act contains several provisions that could provide relief and support for both individuals and businesses.
Title 1 of the CARES Act, entitled “Keeping American Workers Paid and Employed Act,” provides relief for small businesses and their employees who are adversely affected by the COVID-19 outbreak. The key provision in this Act is the Paycheck Protection Program—an emergency lending facility to provide small business loans on favorable terms to borrowers impacted by the current economic state.
Paycheck Protection Program
Small businesses and sole proprietorships affected by the coronavirus pandemic can apply for loans under the federal Paycheck Protection Program (PPP) beginning April 3, 2020, and independent contractors and self-employed individuals can apply beginning April 10, 2020.
The application can be found here on the Treasury site, along with details for borrowers and lenders. The program has a cap and will likely have high demand, so the Treasury has urged those in need of funding to apply quickly.
Employee Retention Payroll Tax Credit
This credit is designed to incentivize employers to continue to pay employees, even though they are experiencing a significant decline in business.
- This credit cannot be used in conjunction with the Payroll Protection Program or any other loan where payroll costs are forgiven.
- To qualify, the employer’s gross receipts must be 50% or less than the same calendar quarter in 2019.
- The credit is equal to 50% of qualified wages with a cap of $10,000 wages per employee. Maximum credit per employee is $5000; the credit cannot exceed the applicable employment taxes on the qualified wages.
Deferral of Employer Social Security Taxes
The CARES Act allows an employer to defer their portion of Social Security taxes from March 27, 2020, to January 1, 2021. 50% is due by December 31, 2021, and the remainder by December 31, 2022. The deferral of employer social security taxes cannot be used in conjunction with the Payroll Protection Program.
The CARES Act provides a fix to include “qualified improvement property” as 15-year MACRS property. This allows employers to expense qualified improvement property under bonus depreciation rules. This amendment is effective for property placed in service after December 31, 2017.
Net Operating Loss Modifications
The CARES Act allows net operating losses arising in tax years beginning in 2018, 2019 and 2020 to be carried back five years, allowing companies to amend prior-year returns. This provision applies to both corporations and pass-through businesses. This provision could help businesses raise some current cash.
Please reach out to a Forge Financial and Management Consulting team member with any questions!