CARES Act: Opportunities & Tax Relief for Small Businesses affected due to COVID-19

With the unprecedented impact on the economy due to COVID-19, Congress has stepped in and passed the CARES Act. The CARES Act provides relief to small businesses, nonprofits, individuals, and state and local authorities to assist with handling the immediate impact of coronavirus.

This Act covers several areas relating to payroll and small businesses. Here are several of the highlights:

Paycheck Protection Program (PPP) 

The Paycheck Protection Program (PPP) will direct $349 billion towards business operating expenses and job retention. PPP will provide relief to small businesses to cover payroll, salaries, and expenses including rent, utilities, and mortgage payments.

Businesses such as non-profits, sole proprietorships, self-employed and independent contractors, with 500 or fewer employees are eligible for this loan.

The Small Business Administration will forgive a portion of these loans if all employees are kept on the payroll for eight weeks.

Economic Injury Disaster Loans (EIDL)

The Economic Injury Disaster Loan can provide up to $2 million to small businesses or nonprofits that suffer an economic injury due to a declared disaster regardless of the actual physical damage of the applicant.

Small businesses must have suffered from economic injury and should be located in the declared disaster area.

Employee Retention Tax Credit

The Employee Retention Tax Credit provides a refundable payroll tax credit for 50% of qualified wages paid by employers.

This program also provides businesses and nonprofits impacted by COVID-19 with federal tax credits for any wages paid from March 13, 2020, to December 31, 2020.

Eligible employers are those whose business has been fully or partially suspended due to COVID-19 or the business experienced a 50% reduction in gross receipts for the calendar quarter compared with the same quarter last year. 

Deferral of Employer Payroll Tax Payments

The Deferral of Employer Payroll Tax Payments portion of the CARES Act allows businesses and those who are self-employed to defer certain payroll taxes.

This program allows businesses and self-employed individuals to defer the employer portion of the social security tax through the end of 2020. Additionally, half of the deferred amount will be due by the end of 2021 and the remaining half will be due by the end of 2022.

Any businesses and nonprofits are eligible to defer their payroll taxes unless they currently have a loan with the SBA Paycheck Protection Program.

Net Operating Loss/Excess Business Loss Changes

The CARES Act has modified the Rules Relating to Net Operating Losses Carrybacks. What does this mean? Previously, net operating losses couldn’t be carried back to prior years. Now the CARES Act permits a five-year carryback of net operating losses.  

Business Interest Deduction

The CARES Act increases the business interest deduction limitation to 50%

Previously the business interest deduction limitation, defined by the Tax Cuts and Jobs Act, was 30%. This change allows businesses to calculate the limitation for the taxable year beginning in 2020, based on the adjusted taxable income for the taxable year beginning in 2019.

This deduction applies to any businesses that suffer a loss in 2020 as a result of the COVID-19 pandemic. 

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) brings substantial changes to paid sick and FMLA leave for employees for 2020. Businesses are now able to request reimbursement for benefits through tax credits.

Employers must now provide employees with up to 10 weeks of paid FMLA. They must also offer paid sick leave to employees who are unable to work because they’ve been impacted by COVID-19 and in self-quarantine, isolation or caring for their family members. 

Businesses with fewer than 500 employees are eligible to claim tax credits using this Families First Coronavirus Response Act.

The CARES Act is a comprehensive stimulus package with wide-reaching benefits. These are just a few of the ways it impacts small businesses and payroll.

If you need additional resources, please visit the following links or ask your accountant for further assistance. 

SBA’s Local Assistance

Disaster Relief

SBA Disaster Assistance

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