Refundable tax credits are available for private-sector employers that are required to offer coronavirus related paid leave to employees. The Internal Revenue Service (IRS) will be posting information soon on these credits on its website, including information on how to obtain advance payment of these credits.
The employer side of certain payroll taxes is deferred through the end of 2020. Deferred taxes will not become due until the end of 2021 and the end of 2022, with 50% of the liability being paid at each date. Any business that does not have a loan forgiven under the new Small Business Administration (SBA) Paycheck Protection Program is eligible for the payroll tax deferral.
Employee Retention Tax Credit
An employee retention tax credit is available for struggling businesses that are not eligible or choose not to participate in the new SBA Paycheck Protection Program. Any business that has been forced to fully or partially suspend operations or that has seen a significant drop in revenues is eligible for a 50% credit for wages paid to furloughed or reduced-hour employees.
For businesses with 100 employees or less, the credit is based on all wages paid, regardless of whether an employee is furloughed. There is an overall limit on wages per employee of $10,000. The credit can be claimed against the business’s quarterly payroll tax liability and is fully refundable to the extent of the excess. There will also be options to receive advance payments. Small business owners should look out for information at the IRS website and talk to their payroll service provider, as applicable.
Small Business Administration Paycheck Protection Program
$350 billion is made available for a new Small Business Administration Paycheck Protection Program (PPP). The program would provide cash-flow assistance through 100% federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the loans would be forgiven, which would help workers remain employed, as well as help affected small businesses and our economy to snap-back quicker after the crisis.
PPP has a host of attractive features, such as forgiveness of up to eight weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program is would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.
Non-Disaster SBA Loans
$17 billion is available for immediate relief to small businesses with non-disaster SBA loans, in particular 7(a), 504, and microloans. Under it, SBA will cover all loan payments on these SBA loans, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
SBA Economic Injury Emergency Grant Program
The CARES Act creates a new SBA Economic Injury Emergency Grant Program. These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19 within three days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you must first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance and may be used to keep employees on payroll, to pay for sick leave, meet increased production costs due to supply chain disruptions or pay business obligations, including debts, rent, and mortgage payments.
What Type of Assistance Will Independent Contractors Be Eligible For?
Refundable tax credits are available for independent contractors who would have qualified for coronavirus related paid leave if they were employees. IRS will be posting information soon on these credits on its website, including information on how to claim these credits. 50% of certain self-employment taxes are deferred through the end of 2020. Deferred taxes will not become due until the end of 2021 and the end of 2022, with 50% of the liability being paid at each date. Independent contractors are also eligible for assistance through the Small Business Administration’s new Paycheck Protection Program and Economic Injury Emergency Grant Program.