More

Types of Economic Relief

Types of Economic Relief

Bookminders is providing a compilation of published information from the IRS, SBA and ADP.  There are additional webpages explaining the different solutions.  Clients should work with their lender, CPA and/or legal team to carefully assess all of the available assistance programs to determine the interplay and best option for their specific circumstances.

IRS Employee Retention Credit

Information Source: https://www.irs.gov/coronavirus/employee-retention-credit

The Employee Retention Credit is a refundable tax credit against certain employment taxes equal to 50 percent of the qualified wages an eligible employer pays to employees after March 12, 2020, and before January 1, 2021. Eligible employers can get immediate access to the credit by reducing employment tax deposits they are otherwise required to make. Also, if the employer’s employment tax deposits are not sufficient to cover the credit, the employer may get an advance payment from the IRS.

For each employee, wages (including certain health plan costs) up to $10,000 can be counted to determine the amount of the 50% credit. Because this credit can apply to wages already paid after March 12, 2020, many struggling employers can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19.

Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:

  1. the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
  2. a significant decline in gross receipts. 

A significant decline in gross receipts begins:

  • on the first day of the first calendar quarter of 2020
  • for which an employer’s gross receipts are less than 50% of its gross receipts
  • for the same calendar quarter in 2019.

The significant decline in gross receipts ends:

  • on the first day of the first calendar quarter following the calendar quarter
  • in which gross receipts are more than of 80% of its gross receipts
  • for the same calendar quarter in 2019.

The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.

Qualified wages

The definition of qualified wages depends on how many employees an eligible employer has.

If an employer averaged more than 100 full-time employees during 2019, qualified wages are generally those wages, including certain health care costs, (up to $10,000 per employee) paid to employees that are not providing services because operations were suspended or due to the decline in gross receipts. These employers can only count wages up to the amount that the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of economic hardship.

If an employer averaged 100 or fewer full-time employees during 2019, qualified wages are those wages, including health care costs, (up to $10,000 per employee) paid to any employee during the period operations were suspended or the period of the decline in gross receipts, regardless of whether or not its employees are providing services.

Impact of other credit and relief provisions

An eligible employer’s ability to claim the Employee Retention Credit is impacted by other credit and relief provisions as follows:

  • If an employer receives a Small Business Interruption Loan under the Paycheck Protection Program, authorized under the CARES Act, then the employer is not eligible for the Employee Retention Credit.
  • Wages for this credit do not include wages for which the employer received a tax credit for paid sick and family leave under the Families First Coronavirus Response Act.
  • Wages counted for this credit can’t be counted for the credit for paid family and medical leave under section 45S of the Internal Revenue Code.
  • Employees are not counted for this credit if the employer is allowed a Work Opportunity Tax Credit under section 51 of the Internal Revenue Code for the employee.

Claiming the credit

In order to claim the new Employee Retention Credit, eligible employers will report their total qualified wages and the related health insurance costs for each quarter on their quarterly employment tax returns, which will be Form 941 for most employers, beginning with the second quarter. The credit is taken against the employer’s share of social security tax but the excess is refundable under normal procedures.

In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act (PDF)

Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.

SBA Economic Injury Disaster Loan

Information Source: https://www.sba.gov/disaster-assistance/coronavirus-covid-19#section-header-3

The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). Upon a request received from a state’s or territory’s Governor, the SBA will issue under its own authority, as provided by the Coronavirus Preparedness and Response Supplemental Appropriations Act that was recently signed by the President, an Economic Injury Disaster Loan declaration.

  • Any such Economic Injury Disaster Loan assistance declaration issued by the SBA makes loans available statewide to small businesses and private, nonprofit organizations to help alleviate economic injury caused by the Coronavirus (COVID-19). This will apply to current and future disaster assistance declarations related to Coronavirus.
  • The SBA’s Office of Disaster Assistance will coordinate with the state’s or territory’s Governor to submit the request for Economic Injury Disaster Loan assistance. 
  • Once a declaration is made, the information on the application process for Economic Injury Disaster Loan assistance will be made available to affected small businesses within the state.
  • The SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
  • These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%. 
  • The SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay. 
  • The SBA’s Economic Injury Disaster Loans are just one piece of the expanded focus of the federal government’s coordinated response, and the SBA is strongly committed to providing the most effective and customer-focused response possible. 
  • For questions, please contact the SBA disaster assistance customer service center at 1-800-659-2955 (TTY: 1-800-877-8339) or e-mail  disastercustomerservice@sba.gov.

Areas eligible for SBA disaster loans

Small business owners in all U.S. states and territories are currently eligible to apply for a low-interest loan due to Coronavirus (COVID-19).

Economic Injury Disaster Advance Loan

In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.  This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available within three days of a successful application. This loan advance will not have to be repaid.

Apply for the Loan Advance here.

Other Coronavirus Assistance

Due to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are currently eligible to apply for a loan advance of up to $10,000.  The SBA provides a debt relief to small businesses as they overcome the challenges created by this health crisis.

SBA Paycheck Protection Program

Information Source: https://sbshrs.adpinfo.com/covid19-small-business-loans#ppp

Updated on April 8, 2020

The Paycheck Protection Program (PPP) is a new loan program for small businesses. The program will be administered by the Small Business Administration (SBA), which will fully guarantee loans provided by approved lenders to eligible entities. Forgiveness of these loans is also available under certain circumstances. Here are some additional facts about the PPP:

Eligible Businesses

Businesses and nonprofit organizations with no more than 500 employees are eligible for the PPP through June 30, 2020. Businesses must have been in operation, with employees, on February 15, 2020. There are special rules for determining the 500-employee limit (for example, for employers in the Hospitality and Food Service industries (NAICS code 72), the 500-employee limit may be determined based on the number of employees per physical location). Certain franchises may also qualify as separate businesses.

Maximum Loan Amount

PPP loans will be provided in amounts approximately equivalent to ten weeks of payroll costs. Loan amounts are determined based on 250% of average monthly payroll costs, taking into consideration average wages paid during the applicable period (which will either be the one-year period prior to the loan or calendar year 2019, as determined by the lending institution), up to a limit of $10 million. There are alternate periods for seasonal employers and those not in business in the prior year.

In addition to wages, commissions, and other compensation, the calculation of payroll costs includes employer healthcare costs such as insurance premiums, employer state and local taxes paid on employee gross pay, and other specified costs. However, as provided by the CARES Act, this calculation excludes employee annual salary over $100,000 per employee.

Loan Uses

  • Payroll costs (as described above);
  • Costs related to the continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums;
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.

Loan Forgiveness

Up to 100 percent of the PPP loan is forgivable (to the extent that employers maintain specified employment and wage levels), and the loan amounts forgiven are excluded from taxable income for federal income tax purposes. The loan will be fully forgiven if the funds are used for payroll costs and the other Loan Uses described above (however, the SBA has announced that due to likely “high subscription,” at least 75 percent of the forgiven amount must have been used for payroll).

To determine the amount that will be forgiven, the average number of full-time equivalent employees per month will be compared to either the prior-year period or January through February of 2020. An alternate calculation may apply for seasonal employers. A similar comparison will apply to wage levels.

Repayment of a proportionate part of the loan may be required if earnings of an employee is reduced by 25% or more compared to the most recent full quarter of employment before February 15, 2020. In addition, reductions in the number of employees or compensation occurring between February 15 and April 26, 2020 will not be considered in reducing the loan forgiveness amount if reversed by June 30, 2020.

Lenders will be required to obtain specified documentation to demonstrate employment and wage levels through the period.

RUN Powered By ADP® clients now have access to a new report that will provide payroll data to help them complete the application. In RUN, the report is called CARES SBA-PPP: Monthly Payroll CostLearn more.

Note: As a result of the latest guidance from the government on April 6, 2020 regarding the Paycheck Protection Program (PPP) under the CARES Act, we updated our RUN Powered by ADP® payroll cost reporting tool. In accordance with the changed guidance from the government, our RUN payroll cost report no longer includes federal employment taxes assessed on the employer (i.e., FICA) in determining payroll costs. The newest guidance indicates that if your loan application has already been processed by your lending institution then you do not need to do anything further. If you submitted a loan application that has not been processed, you may revise your application and you should work with your lender to determine how to do this. We encourage clients that ran their payroll cost report before April 8, 2020, to re-run their report, and to do so as close in time as possible to submitting their application to their lending institution.

Applying for PPP Loans

Employers can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. Employers should consult with your local lender as to whether it is participating in the program.

Some lenders began processing loan applications on April 3, 2020. If you wish to begin preparing your application, you should contact a participating lender, or you can download a sample form to see the information that will be requested by a lender. Download a sample form.

Borrowers won’t be required to make a personal guarantee for the loan or to provide collateral, and don’t need to be unable to obtain credit elsewhere. Borrowers must make certain good-faith certifications, including, but not limited to, that the uncertainty of current economic conditions makes the loan request necessary to support the ongoing operations. Borrowers must also acknowledge that funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments.

Interplay with Economic Injury Disaster Loans (EIDL) Program

An employer that applies for an EIDL (regardless of whether related to COVID-19) may also apply for a PPP loan, so long as both loans are not used for the same purpose or are otherwise duplicative. An employer can also refinance an existing EIDL into a PPP loan by adding the amount of an EIDL to the sum of the payroll costs. However, any advance amount received under the EIDL Grant Program would be subtracted from the amount forgiven of the PPP loan.

Restrictions

  • Loan proceeds may not be used to pay:
    • Wages exceeding $100,000 per employee (prorated for the covered period)
    • Employees who live outside the U.S.
    • FFCRA paid sick or family leave wages for which credit is allowed
  • Employers that participate in the PPP are not permitted to defer employer Social Security taxes under Section 2302 of the CARES Act.
  • Employers that receive the Employee Retention Credit for Closures Due to COVID-19 are not eligible for the PPP.

Small businesses should work with an experienced financial advisor to carefully assess all of the available assistance programs to determine the interplay and best option for their specific circumstances. More information on the PPP can be found here. In addition, the U.S. Department of the Treasury has provided an information sheet here.

Sources and Helpful Information

Information compiled from IRS, SBA and ADP websites