On March 27, 2020, Congress passed and President Trump signed the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) a massive $2 trillion stimulus package to stabilize the U.S. economy during the coronavirus pandemic. The CARES Act is poised to provide needed relief to many citizens and struggling businesses.
Forgivable Small Business Interruption Loans.
One key feature of the CARES Act will include $370 billion to provide bank loans to small and midsize businesses to protect against layoffs and continue employee payments known as “Paycheck Protection Loans”. These loans are generally available to businesses with 500 or fewer employees, with some exceptions. The loans will be backed by the Small Business Administration, but is expected to contain less onerous application procedures in order to expedite the issuance of loans. For example, the main underwriting factor will be proof of payroll costs. Treasury Secretary Steven Mnuchin recently stated that he expects the loan process can be completed the same day the application is made. In addition, unlike typical SBA loans, there will be no personal guaranties, no use of assets as collateral, no fees and the interest rates will be capped at 4%.
The CARES Act contains loans that may be subject to forgiveness for employers that retain their employees or rehire those that were laid off. Certain expenses such as payroll, rent payment, mortgage interest and utilities expended during an eight-week period from the loan’s origination date may be eligible for forgiveness and would essentially become grants to small businesses. However, loans to cover salaries of over $100,000 a year will not qualify for forgiveness, and businesses must demonstrate that they had not recently laid off employees, or a smaller amount of the loan would be subject to forgiveness. To apply for forgiveness, the employer must submit to the lender an application that includes documentation verifying the number of employees, pay rates, and cancelled checks showing mortgage, rent, or utility payments.
Deferred Payroll Taxes
Some businesses may be eligible to defer payroll taxes so they can continue paying employees. Employers could delay paying payroll taxes for 2020, then pay half in 2021 and the other half in 2022. In order to receive this deferral option, employers must keep their employees employed through the COVID-19 crisis. However, employers would not be eligible for the deferral option if they also receive Paycheck Protection Loans made available by the CARES Act.
The CARES Act will also provide single adults a payment from the government of $1,200; couples would receive $2,400 and parents would get $500 per child on top of their total. However, the benefit is subject to a gradual reduction for anyone making $75,000 or more and no benefit to those earning $99,000 or more. The foregoing thresholds will double for married couples. Persons filing as head of household will get full payment if they earn $112,500 or less.
Qualifying income levels will be based on 2019 federal tax returns, if already filed, and otherwise on 2018 returns.
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