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Consolidated CARES Coronavirus Updates

Consolidated CARES Coronavirus Updates

by | Mar 31, 2020 | Articles, Blog, Business, For Businesses, For Individuals, Latest News

19 minute read

Updated Summary of Tax Deadlines

Automatic Extended Due Dates**
StateWhich FilingsFiling DatePayment Date1st Quarter EstimateNotes
CaliforniaAll returns7/15/20207/15/20207/15/2020Includes 2nd  quarter estimates
ConnecticutIndividual7/15/20207/15/20207/15/2020Includes 2ndquarter estimates
Business6/15/20206/15/20206/15/2020
District of ColumbiaAll returns7/15/20207/15/20204/15/20203/26 – OTR says Q1 not included
IllinoisAll returns7/15/20207/15/20204/15/2020Release states est. not included
MarylandAll returns7/15/20207/15/20207/15/2020 
MassachusettsIndividual7/15/20207/15/20207/15/2020Details are forthcoming to confirm estimate
New JerseyNo changes as of 3/29/2020
New YorkIndividual7/15/20207/15/20207/15/2020 
Corporate7/15/20207/15/20207/15/2020 
North CarolinaAll returns7/15/20207/15/20207/15/2020Interest not waived; penalty is waived
PennsylvaniaIndividual7/15/20207/15/20207/15/2020 Includes 2ndquarter estimates
VirginiaAll returnsNo change**7/15/2020No Change**Interest not waived
** As of 3/29/2020 Note: Red ink indicates that we do not have confirmation of this date as of 3/29/2020.

Also, please see the following link, which is being updated regularly as the specific states issue guidance on their filing deadlines as not every state is currently conforming to the IRS extended deadlines:

https://www.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/coronavirus-state-filing-relief.pdf 

Summary of Individual Tax Provisions – CARES Act

Individual Recovery Rebate/Credit

Under the CARES Act, an eligible individual is allowed an income tax credit for 2020 equal to the sum of: (1) $1,200 ($2,400 for eligible individuals filing a joint return) plus (2) $500 for each qualifying child of the taxpayer. Checks are being sent out in the next few weeks as an advance refund of the credit. Children who are (or can be) claimed as dependents by their parents are not eligible individuals, even if they have enough income to have to file a return. It makes no difference if the parent chooses not to claim the child as a dependent, because the dependency deduction is still “allowable” to the parent.

Phaseout of credit. The amount of the credit is reduced (but not below zero) by 5% of the taxpayer’s adjusted gross income (AGI) in excess of: (1) $150,000 for a joint return, (2) $112,500 for a head of household, and (3) $75,000 for all other taxpayers.

Qualification for advance refund: If an individual hasn’t yet filed a 2019 income tax return, IRS will determine the amount of the rebate using information from the taxpayer’s 2018 return. If no 2018 return has been filed, IRS will use information from the individual’s 2019 Form SSA-1099, Social Security Benefit Statement, or Form RRB-1099, Social Security Equivalent Benefit Statement.

IRS may make the rebate electronically to any account to which the payee authorized, on or after Jan. 1, 2018, the delivery of a refund of federal taxes or of a federal payment.

No 10% Additional Tax for Coronavirus-Related Retirement Plan Distributions

The CARES Act provides that the Code Sec. 72(t) 10% additional tax on early distributions from retirement plans does not apply to any coronavirus-related distribution, up to $100,000.

A qualified individual is an individual:

(1) who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention (CDC),

(2) whose spouse or dependent is diagnosed with such virus or disease by such a test, or

(3) who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.

Taxation and Re-Contribution of a Coronavirus Related Retirement Plan Distribution

The CARES Act permits an early distribution from a retirement plan for a qualified individual as shown above to be included in income ratably over three taxable years beginning with the year of distribution. In addition it is possible to repay the distribution to the retirement plan or Individual Retirement Account and have it treated as a qualifying rollover. Distributions repaid in the three-year period beginning on the day after the date the taxpayer took the distribution will be considered as qualified rollovers.

In addition, plans can make loans to a qualified individual up to $100,000 and have them treated as loans.  This is an increase from the current $50,000 limit. The CARES Act also modifies the repayment period for an existing loan for a qualified individual.

RMD Requirement Waived for 2020

In general, participants in  a retirement plan or IRA owner are required to take required minimum distributions (RMDs) annually once the owner reaches age 72 (70 ½ before 2020). The CARES Act provides that the RMD requirements do not apply for calendar year 2020

$300 Above-The-Line Charitable Deduction

The CARES Act adds a deduction to the calculation of gross income, in the case of tax years beginning in 2020, for the amount (not to exceed $300) of qualified charitable contributions made by an eligible individual during the tax year. This would apply to any individual who does not elect to itemize deductions.

Modification to Limitations on Cash Charitable Contributions During 2020

Charitable contribution deductions are subject to various percentage limitations, and the CARES Act temporarily modifies such limitations. For individuals, the Act modifies the limitation for cash contributions from a maximum of 60% to 100% of adjusted gross income. If an individual’s contributions exceed the 100% limitation, the excess contributions may be carried over for the next five tax years.

Key Individual Deadline Extensions

  • Contributions to your IRA, which can be made at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020.
  • Contributions to your Health Savings Account (HSA) or Archer MSA, which can be made at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns is now July 15, 2020, under this relief, you may make contributions to your HSA or Archer MSA for 2019 at any time up to July 15, 2020.
  • Employers are Affected Taxpayers under Notice 2020-18 for whom the due date for filing Federal income tax returns and making Federal income tax payments that would be due April 15, 2020, is now July 15, 2020, the end of the grace period for these employers is also July 15, 2020 under this relief. So, for example, if an employer is a corporation with an April 15, 2020 due date for filing the Form 1120, then the grace period under section 404(a)(6) for the employer to make contributions to its workplace-based retirement plan that are treated as made on account of 2019 ends on July 15, 2020.

 

Summary of Business Tax Provisions – CARES Act

Employee Retention Credit for Employers

Section 2301 of the CARES Act provides for a tax credit for employers subject to a closure related to COVID-19. The employment tax credit for eligible employers for each calendar quarter is equal to 50 percent of qualified wages with respect to each employee for such calendar quarter.

Eligible Employer

An “eligible employer” is an employer which was carrying on a trade or business during calendar year 2020, and which meets either of two conditions with respect to any calendar quarter: (1) the operation of its trade or business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19 (a “Suspension”), or (2) such calendar quarter falls within the period beginning with the first 2020 calendar quarter for which gross receipts are less than 50 percent of gross receipts for the same calendar quarter in the prior year, and ending with the calendar quarter for which gross receipts are greater than 80 percent for the same calendar quarter in the prior year (a “Gross Receipts Decline”). A tax-exempt organization described in Code section 501(c) and exempt from tax under Code section 501(a) is an eligible employer if it is engaged in a trade or business and undergoes a Suspension (but not a Gross Receipts Decline).  Various aggregation rules apply (including certain rules applicable to controlled groups) in determining whether there is a single employer.

Qualified Wages

The definition of “qualified wages” differs for eligible employers greater than 100 full-time employees and eligible employers with 100 or fewer full-time employees. The number of full-time employees is determined based on the average number of full-time employees (within the meaning of Code section 4980H) employed by such employer during 2019. The term “wages” includes wages as defined under Code section 3121(a) and compensation as defined under Code section 3231(e).

Greater than 100 Employees: Qualified wages are wages paid to the extent the employee is not performing services due to the circumstances of a Suspension or Gross Receipts Decline.

100 or Fewer Employees:  Qualified wages are any wages paid during a Suspension or Gross Receipts Decline, including circumstances in which the employee continued to provide services.

Qualified wages taken into account for calculating the credit are limited to $10,000 per employee for all calendar quarters. In effect this means the maximum amount of credit attributable for any employee is $5,000.

Qualified wages include the pre-tax portion of payments by the employer to provide and maintain a group health plan, generally allocated pro rata among employees and pro rata on the basis of periods of coverage (relative to periods to which such wages relate). The Secretary may provide additional guidance for allocating such health plan expenses.

Qualified wages do not include any wages taken into account as qualified sick leave or qualified family leave under the Families First Coronavirus Response Act (“FFCRA”) and the employment provisions within the Families First Coronavirus Response Act.  Additionally, qualified wages with respect to an employee may not exceed the amount such employee would have been paid for working an equivalent duration during the 30 days immediately preceding such period. The mechanism for obtaining this credit has not yet been finalized, but it would appear it will be done via quarterly payroll returns.

Further, a business is not eligible for this credit if they are otherwise obtaining the SBA Loan for the Payroll Protection Program.

Delay of Payment of Employer Payroll Taxes

The CARES Act permits most employers to delay payment of employer-portion Social Security taxes (6.2%).  The delay applies to Social Security taxes due on wages paid between the date of enactment of the CARES Act and January 1, 2021. 50% of the delayed payroll taxes will be due by December 31, 2021, with the other 50% due by December 31, 2022.

The same deferral extends to (1) 50% of the Social Security taxes imposed under the Self-Employed Contributions Act (6.2%) and (2) employment tax imposed on employers under the Railroad Retirement Tax Act (6.2%).

Employers that receive loan forgiveness under Section 1106 (the Paycheck Protection Loan Program) or Section 1109 of the CARES Act are not eligible to defer the applicable taxes.

The CARES Act also exempts payroll processors and certified professional employers or organizations from the liability of the delayed taxes if directed by the employer or customer to delay payment until the applicable deadlines.

The Secretary of Treasury is required to issue regulations or other guidance to implement the delayed payroll and SECA tax payment provisions.

Further, we are awaiting further guidance, but it does not appear you will be eligible for this credit if you are obtaining the SBA Loan for the Payroll Protection Program.

Temporary Repeal of Taxable Income Limitation for Net Operating Losses (NOLs)

Under old tax law, the amount of the NOL deduction is equal to the lesser of (1) the aggregate of the NOL carryovers to such year and NOL carrybacks to such year, or (2) 80% of taxable income computed without regard to the deduction allowable in this section. Thus, NOLs are currently subject to a taxable-income limitation and can’t fully offset income.

The CARES Act temporarily removes the taxable income limitation to allow an NOL to fully offset income.   The 80% income limitation is reinstated (with slight modifications) for tax years beginning after December 31, 2021.

Modification of Limitation on Losses for Non-Corporate Taxpayers

As a result of the Tax Cuts and Jobs Act, a non-corporate taxpayer’s ability to deduct “excess business losses” was limited during tax years beginning after December 31, 2017, and before January 1, 2026.

Excess business losses are the amount by which the total deductions attributable to all of a taxpayer’s trades or businesses exceed such taxpayer’s total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint return).

The CARES Act amends this limitation so that it applies only to taxable years beginning after December 31, 2020. As a result, excess business losses that would otherwise be disallowed for taxable years 2018 through 2020 will be permitted (i.e., receive the same treatment as if the Tax Cuts and Jobs Act had not been enacted).

Technical Correction of Bonus Depreciation for Qualified Improvement Property

The CARES Act includes a fix for, and clarification to, the bonus depreciation rules under Section 168(k) of the Code.

Tax Cut and Jobs Act of 2017 (“TCJA”) contained a provision allowing taxpayers to claim bonus depreciation deductions (up to 100%) for certain types of “qualified property,” which included property with a depreciable life of 20 years or less.  The TCJA also separately defined the concept of “qualified improvement property” (“QIP”), which was defined as “any improvement to an interior portion of a building which is nonresidential real property if such improvement is placed in service after the date such building was first placed in service.” While the TCJA defined qualified improvement property, it failed to assign it a 15-year depreciable life, thereby preventing it from being treated as “qualified property” that would be eligible for bonus depreciation deductions. The omission was widely recognized as a drafting mistake requiring legislative correction to be remedied.

The CARES Act corrects the drafting error by assigning a 15-year depreciable life to QIP, thereby allowing it to be characterized as “qualified property” eligible for bonus depreciation. The CARES Act also revised the definition of “qualified improvement property” to limit that concept to “improvements made by the taxpayer,” thereby eliminating the possibility of the taxpayer getting bonus depreciation for “used” QIP that was purchased by the taxpayer, an issue that was an open question under the statute as originally drafted. These corrections are effective retroactively as if they had been included in the TCJA.

Corporate Minimum Tax Credit (MTC) is Accelerated

The CARES Act amends section 53 of the Internal Revenue Code of 1986 (the “Code”) to accelerate a corporation’s ability to recover AMT refundable credits under section 53(e) that otherwise could have been claimed in 2020 and 2021, to 2018 and 2019, with an option to elect recovery of the full credit amount for 2018. As a result, corporations may obtain additional cash flow that can be used to address the impacts of COVID-19.

Modifications of Limitation on Business Interest

Starting in 2018, Section 163(j) of the Code imposed a limit on trade or business interest deductions.  The amount of deductible business interest expense in a taxable year cannot exceed the sum of:

  • the taxpayer’s business interest income for the year;
  • 30% of the taxpayer’s adjusted taxable income for the year; and
  • the taxpayer’s floor plan financing interest expense for the year.

Disallowed interest is considered paid in the following tax year and may be carried forward indefinitely.  There are certain exceptions to these limits for: (i) certain small businesses (those with average gross receipts over the three prior tax years no greater than $25 million), (ii) regulated public utilities, and (iii) electing real property or farm trades or businesses.

The CARES Act increases the adjusted taxable income limit from 30% to 50%. Generally, the increase is allowed for taxable years beginning in 2019 and 2020. Special rules apply to partnerships, and the increase is only allowed for the partnership’s taxable year beginning in 2020. Because of this special rule for partnerships, the CARES Act contains special rules for excess business interest allocated to partners for the taxable year beginning in 2019. Taxpayers may elect out of this increase for either taxable year; however, such election is irrevocable absent the Secretary’s consent.

This increase in allowable deductions of interest expense will reduce cash taxes for taxpayers subject to the 163(j) limit and allow these businesses increased liquidity, so that they may continue operations and keep employees on the payroll.

 

Families First Coronavirus Response Act – Employer Credits

On March 18, 2020, President Trump signed into law the “Families First Coronavirus Response Act,” (the Act).

In combination, the Emergency Family and Medical Leave Expansion Act and the Emergency Paid Sick Leave Act may require certain private employers with fewer than 500 employees to provide up to 14 total weeks of leave, 12 weeks of which must be paid leave. Such paid leave is required for employees whose absences from work become necessary due to COVID-19 and its consequences. All new requirements on private employers will take effect April 1, and continue through Dec. 31, 2020.

The Emergency Paid Sick Leave Act (Division E)

The Families First Coronavirus Response Act establishes a brand new federal obligation, applicable to all private employers with fewer than 500 employees, to provide up to 80 hours of paid sick time for full-time employees, and paid sick time equal to the hours each part-time employee works in the average two-week period, for those employees “who are unable to work (or telework) due to a need for leave” for any of the following six reasons:

  • The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis;
  • The employee is caring for an individual who is subject to a federal, state, or local quarantine order, or an individual who has been advised to self-quarantine due to concerns related to COVID-19;
  • The employee is caring for the employee’s son or daughter, if the child’s school or child care facility has been closed, or the child’s care provider is unavailable due to COVID-19 precautions; or
  • The employee is experiencing any other substantially similar condition specified by Health and Human Services in consultation with the Department of the Treasury and the Department of Labor.

Emergency sick time relating to an employee’s own condition (see 1-3 above) is calculated based on the employee’s regular rate of pay or applicable minimum wage, whichever is greater, but is limited to $511 per day and $5,110 total.

Emergency sick time relating to situations where the employee is acting as a caregiver (see 4-6 above) is calculated based on two-thirds of the employee’s regular rate of pay or applicable minimum wage, whichever is greater, but is limited to $200 per day and $2,000 total.

The only portion of Emergency Paid Sick Leave Act which indicates how employees must advise employers of their need for emergency paid sick leave, or what employers may require of employees who do so, is a provision which states “after the first workday (or portion thereof) an employee receives paid sick time under the Act, an employer may require the employee to follow reasonable notice procedures in order to continue receiving such paid sick time.” Employers should also note the following:

  • Employees are entitled to use the full amount of their emergency paid sick time, regardless of the duration of their employment.
  • Emergency paid sick time is in addition to, and may be used before, any paid sick time or other paid leave (e.g., vacation or PTO) that the employer otherwise provides to employees.
  • Employers are prohibited from requiring any employee to use paid leave provided by employer before using emergency paid sick leave;
  • Employers must post a notice of the requirements of the Emergency Paid Sick Time Act (to be prepared by the Department of Labor) in conspicuous places where notices to employees are typically posted.
  • Under certain circumstances, an employer who is a party to a multiemployer collective bargaining agreement may fulfill its obligations to provide paid sick time by making an equivalent contribution to the plan fund.
  • Employers may not retaliate or discriminate against any employee who uses emergency paid sick time or has filed a complaint or testified in a proceeding relating to the Emergency Paid Sick Time Act.

Violations of the Emergency Paid Sick Time Act may be treated as a Violation of the Fair Labor Standards Act of 1938 (29 U.S.C. §206) (FLSA), and employers may be subject to substantial penalties under that Act, which may include liquidated damages and fines, among other consequences.

Emergency Family and Medical Leave Expansion Act (Division C)

The Families First Coronavirus Response Act also adds a new statutory basis (Section 102(a)(1)(F)) for leave under the Family Medical Leave Act (FMLA), providing up to 12 weeks of Emergency FMLA leave to eligible employees who are “unable to work (or telework) due to a need for leave to care for the son or daughter under 18 years of age of such employee if the school or place of care has been closed, or the child care provider of such son or daughter is unavailable, due to a public health emergency.”

The Emergency Family and Medical Leave Expansion Act provides that the first 10 days of Emergency FMLA leave may be unpaid. Employees may choose (but cannot be forced) to substitute any accrued paid vacation leave, personal leave, or medical or sick leave (including paid leave under the Emergency Paid Sick Time Act) to which they are otherwise entitled for unpaid leave during this initial 10 days of Emergency FMLA. Thereafter, covered employers must provide eligible employees with up to ten (10) weeks of Emergency FMLA leave, paid at two-thirds of the employees’ regular rate of pay, up to $200 per day and $10,000 total. Under certain circumstances, an employer who is a party to a multiemployer collective bargaining agreement may fulfill its obligations to provide paid Emergency FMLA by making an equivalent contribution to the plan fund.

Credit for Paid Sick Leave

The tax credit allowed for the 80 hours of required paid sick leave depends on the reason the employee is out of work.

The maximum credit is $511 per day for an employee who is out of work because:

  • The employee is subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
  • The employee is experiencing symptoms of COVID-19 and seeking medical diagnosis.

The maximum credit is $200 per day for an employee who is out of work because:

  • The employee is caring for an individual who is subject to a federal, state, or local quarantine order, or an individual who has been advised to self-quarantine due to concerns related to COVID-19;
  • The employee is caring for the employee’s son or daughter, if the child’s school or child care facility has been closed, or the child’s care provider is unavailable due to COVID-19 precautions; or
  • The employee is experiencing any other substantially similar condition specified by Health and Human Services in consultation with the Department of the Treasury and the Department of Labor.

An employer may choose to pay a greater amount of sick leave than required under FFCRA, but it will not be allowed a tax credit for the excess. Furthermore, an employer would not be entitled to a credit if it voluntarily pays amounts to its employees who do not satisfy any of the criteria listed above.

The $200 or $511 per day maximum tax credit includes sick pay paid to an employee, plus amounts paid by the employer to maintain group health plan benefits for the employee if such group health plan is tax-free to the employee (as most employer-provided health plans are).

The tax credit is applied to offset the employer’s share of the social security component of its payroll taxes, and the tax credit is refundable. Because the tax credit is refundable, if the amount of the sick leave or family leave payments exceed the employer’s social security portion of its payroll taxes, the excess will be refunded to the employer, so that the government will fund the entire amount of the sick leave. The legislation presents a timing problem in that the refund would generally not be paid until the quarterly payroll tax return is filed; however, the IRS has published Release IR-2020-57, which alleviates this timing problem.

This new IRS release states that instead of having to remit payroll taxes, including taxes withheld from its employees, that the employer may retain the payroll taxes to get the benefit of the tax credit, rather than having to deposit these taxes per the usual payroll tax deposit requirements. The release provides an example where an employer pays $5,000 in required sick leave payments, and is required to deposit $8,000 in payroll taxes, including the taxes withheld from its employees. In this case, the employer is allowed to use up to $5,000 of the $8,000 in taxes it was going to deposit for making the required sick leave payments. In other words, an employer will essentially be able to pocket the taxes it has withheld in order to claim the credit.

Furthermore, the IRS notice states that if the paid sick leave exceeds the amount of payroll taxes which an employer may retain to take the tax credit, that it will provide an accelerated refund procedure, so that the employer will not need to wait until the quarterly payroll tax return is filed to receive the refund. The notice states that the IRS will release a streamlined refund claim form the week of March 30.

The tax credit is only available for sick leave that an employer is required to pay under the FFCRA. The paid sick leave requirements for employers does not commence until April 1, 2020. This provision has the effect of not allowing any tax credit for sick leave benefits for periods prior to April 1. Although the Secretary of the Treasury has the authority to allow the tax credit for sick leave paid for a period prior to April 1, this early start option was declined when the IRS announced in Notice 2020-21 that they were sticking with the April 1 date. Accordingly, if an employer makes sick leave payments for periods prior to April 1, such payments would not be eligible for the tax credit.

Although an employer is required to pay up to 80 hours of paid sick leave, the tax credit allowed to an employer is limited to 10 days of combined sick leave; accordingly, if an employer pays less than eight hours of sick leave per day for a full-time employee, the tax credit will not cover the total cost of the sick leave. For example, assume an employee works six hours per day, and the employer pays only six hours of sick leave over a period of 14 days to reach the 80-hour paid sick leave requirement. In such a case, the employer’s tax credit would be limited to only 60 hours. Accordingly, in order to receive the maximum tax credit, an employer should pay eight hours of sick leave per day, rather than spreading it out over a period longer than 10 days.

The tax credit allowed to an employer is treated as income to the employer. This is to avoid a double tax benefit, because the employer is allowed to deduct the sick leave payments to its employees. By requiring the employer to include the tax credit in income, the total after-tax cost would be reflected as $0 rather than a net after-tax savings.

The amount of the credit would be reduced by any amount of debt the employer owes to any federal agency. This would include any tax debts owed to the IRS. As a result, if the employer owes any back taxes which have been assessed as a deficiency, the amount of the refund will be reduced by the amount owed.

Credit for Required Paid Family Leave

In addition to the 80 hours of paid sick leave, a company that employs less than 500 employees is also obligated to pay family leave to its employees for up to 12 weeks to employees who are out of work because they are caring for a child whose school or daycare provider is closed due to COVID-19.

An employer is allowed a credit of 100% of such family leave payments. The maximum credit amount for family leave payments required by FFCRA is $200 per day per employee, with a maximum of $10,000 per employee for all quarters.

 

CARES Act Expanded Loan Programs

The CARES Act expands the eligibility criteria for borrowers to qualify for loans that are available through the U.S. Small Business Administration (SBA) by adding the Paycheck Protection Program to the SBA’s gamut of loan programs. The Paycheck Protection Program provides federally-guaranteed loans up to a maximum amount of $10 million to eligible businesses, which can be partially forgivable (as elaborated below), to encourage businesses to retain employees through the COVID-19 crisis by assisting in the payment of certain operational costs. To accommodate for this SBA expansion, the CARES Act has authorized commitments to the SBA 7(a) loan program, as modified by the CARES Act, in the amount of $349 billion. The Paycheck Protection Program covers the period beginning February 15, 2020 and ending on June 30, 2020 (the Covered Period).

Increased Eligibility for Certain Small Businesses and Organizations

In addition to a business qualifying as a “small business concern” under the Small Business Act, any business concern, nonprofit organization, veterans organization, or tribal businesses (each, a Covered Entity) is eligible to receive a loan (a Paycheck Protection Loan) during the Covered Period if the Covered Entity employs not more than the greater of (i) 500 employees (includes individuals employed on a full-time, part-time or other basis) or (ii) if applicable, the size standard in number of employees established by the SBA for the industry in which Covered Entity operates.

There are special exceptions to standard SBA regulations that relax eligibility restrictions for certain Covered Entities during the Covered Period. For example, a Covered Entity in the hospitality and dining industry designated as such under Sector 72 of the North American Industry Classification System (NAICS) that employs fewer than 500 employees per physical location is eligible to receive a loan. In addition, federal regulations that reduce eligibility by testing size based on affiliations with related parties will be waived in limited circumstances.

Authorized Use of Proceeds

The proceeds of a Paycheck Protection Loan may be used to pay for only the following items (in each case, subject to certain specified exclusions): (i) payroll costs, (ii) costs related to group health care benefits during periods of paid sick, medical or family leave, and insurance premiums, (iii) employee salaries, commissions, or similar compensations, (iv) mortgage interest payments (but not any prepayment of or payment of principal on a mortgage obligation), (v) rent, (vi) utilities and (vii) interest on any other debt obligations that were incurred before the Covered Period.

Maximum Loan Amount, Interest Rate and Maturity for Loans with Remaining Balances

During the Covered Period, the maximum loan amount permitted for an eligible Covered Entity is the lesser of $10,000,000 and an amount calculated based on a payroll formula that essentially equals 2.5x the average total monthly payroll cost incurred in the one-year period before the loan is made.

The interest rates for loans borrowed by a Covered Entity under the program may not exceed four percent (4%).

Any Paycheck Protection Loan that has a remaining principal balance after any applicable loan forgiveness (as covered in detail below) must have a maturity date no later than 10 years from the date on which the borrower applied for loan forgiveness.

Payment Deferral

The SBA will direct lenders to defer all payments (principal, interest and fees) otherwise due under a Paycheck Protection Loan for a minimum of 6 months and a maximum of 12 months.

Collateral or Other Credit Support

A borrower will not be required to pledge any collateral or provide personal guarantees to secure or support a Paycheck Protection Loan.

Loan Forgiveness (and Potential Reduction in the Forgiveness Amount)

During the 8-week period beginning on the date a Paycheck Protection Loan is funded (the Forgiveness Period), a borrower will be eligible for forgiveness and cancellation of indebtedness for up to the full principal amount of such loan. The amount eligible for forgiveness (the Total Eligible Forgiveness Amount) is equal to the total costs incurred and payments made during the Forgiveness Period for (1) payroll, (2) mortgage interest, (3) rent and (4) utilities.

The loan forgiveness amount available to a borrower is subject to reduction if the borrower terminates employees or reduces employee salary and wages during the Forgiveness Period. There is, however, relief from the forgiveness reduction if the borrower rehires employees or makes up for wage reductions by June 30, 2020.

 

Business Coronavirus Loan Resources

The U.S. Small Business Administration has useful links to their Covid-19 Loan programs:

https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

Small Business Administration (conventional 7(a) loan program):

https://www.sba.gov/partners/lenders/7a-loan-program/types-7a-loans

Please see the link from Forbes that is being updated to include Small Business Relief Trackers including Federal and State assistance:

https://www.forbes.com/sites/briannegarrett/2020/03/20/small-business-relief-tracker-funding-grants-and-resources-for-business-owners-grappling-with-coronavirus/#50476e2cdd4c

Specific State Programs:

MD: https://govstatus.egov.com/md-coronavirus-business

DC: https://coronavirus.dc.gov/recovery-business

VA: https://www.virginia.gov/coronavirus-updates/

PA: https://dced.pa.gov/funding-programs/

NY: https://www1.nyc.gov/site/sbs/businesses/covid19-business-outreach.page

CA: https://www.ibank.ca.gov/small-business-finance-center/

 

Please do not hesitate to reach out to your firm contact with any questions.

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We are CPAs and Accountants serving Rockville, MD, Virginia and the Washington, D.C. metropolitan area.

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