On Friday, March 27, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed into law. This act formalizes the $2 trillion stimulus plan aimed at relieving the economic strain of the COVID-19 pandemic on Americans.
While much the bill deals with plans to help individuals through direct payments, we’re focusing on what business owners need to know to keep their doors open through the crisis.
1. Taxes Are Due July 15
First thing’s first: the tax due date has been moved from April 15 to July 15. While this isn’t officially part of the stimulus plan, we think it’s important.
Many small businesses in the U.S. are set up as pass-through entities, meaning that business income will be reported on the owner’s individual returns. Because of this, the delay in the due date for annual income tax can have a big impact on those business owners.
So if you’ve got more pressing things to focus your attention on, or if you’re worried about making a hefty tax payment right now, you have a few more months of leeway.
2. SBA Loans & Resources
The biggest result of the new legislation for small businesses is the addition of $350 billion set aside for small business loans. The U.S. Small Business Administration has been instructed to offer Payroll Protection Plan loans to businesses affected by the virus, and the primary goal of these funds is to keep workers on the payroll. Here’s what you need to know about applying.
Who’s Eligible for SBA Loans?
- Businesses with under 500 employees.
- Sole proprietors, self-employed individuals, and independent contractors.
How Much Can I Borrow?
The CARES Act incentives keeping employees on your payroll. For that reason, the amount that you can borrow is based in large part on your payroll expenses. Here’s the simple equation they’ll be using.
Max. Loan Amount = 2.5 x Average Monthly Payroll Costs for 2019
If your business was not around in 2019, you’ll use the average monthly payroll cost for the first quarter of 2020. The loan amount cannot exceed $10 million.
Do I Have to Pay It All Back?
The big question: how much are you on the hook for? The simplest answer is that how much you pay back depends on what you spend the money on. You will not have to pay back any funds that you spent on the following:
- Payroll costs*
- Interest on mortgage obligations
- Additional wages to employees that usually receive tips
It’s important to note that the amount of loan forgiveness you receive can decrease if you lay off employees or decrease wages by more than 25%.
Note: The U.S. Chamber of Commerce has released a useful infographic that details more of the loan program’s specifics. Check it out here.
*Payroll Costs: There are some rules around what counts as a payroll cost and what doesn’t. For example, it does not include payroll taxes, payments to employees that primarily live outside the U.S. or sick leave that is already covered by the Families First Coronavirus Response Act.
What If I’ve Already Laid Off Employees?
Your loan forgiveness amount will not be reduced if you hire back employees by June 30, 2020. Specifically, if you reduced your workforce between February 15, 2020, and April 27, 2020, and are able to bring them back with the funds secured, you will be eligible for loan forgiveness.
Where Do I Apply?
You can apply for a Paycheck Protection Plan loan through an existing SBA 7(a) lender. You should first check with your local lender to see if they participate. Lenders should be ready to begin processing applications on April 3, 2020.
Click here to view a sample application in preparation for meeting with your lender. This will help you know what information you need to collect.
3. Payroll Tax Deferment
Another initiative suggested that will require congressional approval is a temporary deferment of payroll taxes. While President Trump’s original intention was to give businesses a nine-month hiatus from payroll taxes, the current plan simply delays the payments. So while you will still need to withhold money from employees’ paychecks, you will not be required to hand over that money to the government quite yet.
According to the plan, companies will be required to pay 50% of their 2020 payroll taxes by the end of 2021. The remaining 50% must be paid by the end of 2022.
4. Follow CDC Guidelines
As we’ve said, this is a rapidly changing situation. Every day, more news breaks and more recommendations are made for Americans. Pay close attention to the CDC’s recommendations for your region. Be prepared with a work-from-home policy (if your business allows for this flexibility) and a communication strategy to keep your team, customers, and community in the loop.
If you need additional help, the SBA has a local assistance program that offers mentorship and training for local businesses.
This post was last updated on March 30, 2020. We will do our best to update according to the latest news.