On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the third phase of legislation aimed at fighting the COVID-19 pandemic and mitigating the related economic harm for families, workers and businesses.
It's the largest stimulus package in history, with an estimated cost of $2.2 trillion. The government, rather than relying on unemployment, has instead decided to channel funds to small businesses to “keep the lights on.”
Here are the highlights:
Businesses may apply directly with the SBA at sba.gov/disaster. This program:
This program authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.
The loan amounts will be forgiven as long as:
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to a likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for 6 months, then be amortized over two years at a 1% annual interest rate. You 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.
You can generally defer the employer share of the 6.2% Social Security tax on wages paid from March 27, 2020, through Dec. 31, 2020, with 50% due on Dec. 31, 2021, and 50% due on Dec. 31, 2022. A similar rule applies to 50% of the self-employment tax liability of partners and sole proprietors.
The deferral is not available if you take advantage of loan forgiveness under the PPP (above).
The CARES Act added a refundable payroll tax credit equal to 50% of certain compensation paid from March 13, 2020 to December 31, 2020. To qualify, your business must either have had its:
If your business has more than 100 employees, the credit is available only for compensation paid to employees who are not working as a result of one of the two situations listed above. If your business has 100 or fewer employees, any compensation paid during the period when the operations were impacted by one of the two scenarios is eligible for the credit, even if it's paid to an employee who is still working.
The credit is limited to the first $10,000 of compensation paid to a particular worker. The credit is not available for compensation taken into account in computing the sick leave or family medical leave credits under the Families First Coronavirus Response Act (go here to learn more: bit.ly/345UtOX). Similarly, the credit is not available to employers who take advantage of a small business interruption loan under the paycheck protection program, so you'll need to take the loss of the credit into account in determining whether to use the paycheck protection program.
Other changes impacting businesses:
For individuals, you may be entitled to a “recovery rebate” of $1,200 ($2,400 married filing joint), plus an additional $500 per qualifying child, if you are a U.S. resident and can't be claimed as a dependent of another taxpayer.
The rebate begins phasing out if your income exceeds $75,000 ($112,500 head of household/ $150,000 married filing joint).
The IRS will begin direct depositing the rebate or mailing checks around April 6, and will base the first round of payments on income reported on your 2018 tax return (or 2019 return, if you've already filed). If you receive a rebate but your 2020 income makes you ineligible for the rebate, there is no requirement for you to pay it back.
The 10% penalty on an early withdrawal from a retirement account is waived for up to $100,000 of distributions for coronavirus-related purposes made on or after January 1, 2020. A distribution is considered coronavirus related if it is made to an individual:
If you take a coronavirus-related distribution, you can either report the distribution as ordinary income ratably over a three-year period beginning in 2020 or you can re-contribute the funds to a retirement plan within three years to avoid tax on the withdrawal altogether.
The April 15, 2020, deadline is now July 15, 2020. Payment of any shortfall of 2019 taxes are now due July 15, 2020 as well. 2020 estimated tax payments begin October 15, 2020. This payment will be a “whopper” since the first, second, and third estimated tax payments are all due on this day.
Please note that this discussion is general in nature, and not intended to be tax advice. Please consult with a CPA to get answers to your specific fact pattern. Follow me on Facebook to receive updates on current developments. John Werlhof, Principal of CLA Sacramento (Roseville) assisted with this week's column.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.
-->On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the third phase of legislation aimed at fighting the COVID-19 pandemic and mitigating the related economic harm for families, workers and businesses.
It's the largest stimulus package in history, with an estimated cost of $2.2 trillion. The government, rather than relying on unemployment, has instead decided to channel funds to small businesses to “keep the lights on.”
Here are the highlights:
Businesses may apply directly with the SBA at sba.gov/disaster. This program:
This program authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.
The loan amounts will be forgiven as long as:
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to a likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
Loan payments will be deferred for 6 months, then be amortized over two years at a 1% annual interest rate. You 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.
You can generally defer the employer share of the 6.2% Social Security tax on wages paid from March 27, 2020, through Dec. 31, 2020, with 50% due on Dec. 31, 2021, and 50% due on Dec. 31, 2022. A similar rule applies to 50% of the self-employment tax liability of partners and sole proprietors.
The deferral is not available if you take advantage of loan forgiveness under the PPP (above).
The CARES Act added a refundable payroll tax credit equal to 50% of certain compensation paid from March 13, 2020 to December 31, 2020. To qualify, your business must either have had its:
If your business has more than 100 employees, the credit is available only for compensation paid to employees who are not working as a result of one of the two situations listed above. If your business has 100 or fewer employees, any compensation paid during the period when the operations were impacted by one of the two scenarios is eligible for the credit, even if it's paid to an employee who is still working.
The credit is limited to the first $10,000 of compensation paid to a particular worker. The credit is not available for compensation taken into account in computing the sick leave or family medical leave credits under the Families First Coronavirus Response Act (go here to learn more: bit.ly/345UtOX). Similarly, the credit is not available to employers who take advantage of a small business interruption loan under the paycheck protection program, so you'll need to take the loss of the credit into account in determining whether to use the paycheck protection program.
Other changes impacting businesses:
For individuals, you may be entitled to a “recovery rebate” of $1,200 ($2,400 married filing joint), plus an additional $500 per qualifying child, if you are a U.S. resident and can't be claimed as a dependent of another taxpayer.
The rebate begins phasing out if your income exceeds $75,000 ($112,500 head of household/ $150,000 married filing joint).
The IRS will begin direct depositing the rebate or mailing checks around April 6, and will base the first round of payments on income reported on your 2018 tax return (or 2019 return, if you've already filed). If you receive a rebate but your 2020 income makes you ineligible for the rebate, there is no requirement for you to pay it back.
The 10% penalty on an early withdrawal from a retirement account is waived for up to $100,000 of distributions for coronavirus-related purposes made on or after January 1, 2020. A distribution is considered coronavirus related if it is made to an individual:
If you take a coronavirus-related distribution, you can either report the distribution as ordinary income ratably over a three-year period beginning in 2020 or you can re-contribute the funds to a retirement plan within three years to avoid tax on the withdrawal altogether.
The April 15, 2020, deadline is now July 15, 2020. Payment of any shortfall of 2019 taxes are now due July 15, 2020 as well. 2020 estimated tax payments begin October 15, 2020. This payment will be a “whopper” since the first, second, and third estimated tax payments are all due on this day.
Please note that this discussion is general in nature, and not intended to be tax advice. Please consult with a CPA to get answers to your specific fact pattern. Follow me on Facebook to receive updates on current developments. John Werlhof, Principal of CLA Sacramento (Roseville) assisted with this week's column.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.
