CARES Act Guide for Small Businesses
Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. The CARES Act is the largest economic bill in U.S. history, and it provides much-needed relief for small businesses nationwide that are having difficulty covering their payroll and operating expenses because of the COVID-19 pandemic. Envision Capital Group broke down the CARES Act to provide you with a summary of how it can help your small business during these challenging times. This information is subject to change, so please visit the SBA website for the latest updates. In addition, Envision Capital Group encourages you to contact your accountant or business attorney if you have any further questions about the CARES Act, as every company’s situation is unique.
Payroll tax delay.
The CARES Act enables you to delay paying your company’s portion of payroll taxes on wages beginning on March 27, 2020 and ending on December 31, 2020. The deferred amount needs to be paid in two installments: 50% is due on or before December 31, 2021, and the remaining 50% is due on or before December 31, 2022. Deferral is not available if you take an SBA paycheck protection loan.
Paycheck protection program.
Job retention is critical to your business, and to the nation’s economy. The SBA paycheck protection program puts millions of American jobs first by allocating $349 billion for job retention. The program provides certain qualified small businesses with zero-fee loans of up to $10 million to cover payroll and other daily operating expenses. Independent contractors, sole proprietorships, nonprofits, Veteran organizations, franchisees, and Tribal businesses are also eligible if they meet program size standards, and are included in the Small Business Act. If you keep your employees, the SBA will forgive up to eight weeks of payroll and other expenses. In addition, payments on principal and interest will be deferred for six months.
As you know, the COVID-19 pandemic has sent shockwaves through the business world. Sales are slumping, revenue forecasts are being slashed, and millions of business owners are wondering how they will pay back their outstanding loans. That said, the CARES Act includes a loan forgiveness provision for existing loans, as well as new loans under the paycheck protection program. If you already have an SBA loan (ex: 7(a), 504, or microloan) or take one out within six months after the CARES Act was enacted, the SBA will pay all associated loan costs, including principal, interest, and fees, for a period of six months. In addition, you can also ask for an extension of the duration of your loan, and delay certain reporting requirements. If you obtain a loan under the paycheck protection program, the loan forgiveness will equal the loan amount you spend the eight-week period after the loan origination date on these expenses. Note: The loan forgiveness cannot exceed the original principal amount of your loan.
- Payroll costs – cannot top $100,000 of annualized compensation per employee
- Interest payments on a mortgage loan incurred before February 15, 2020
- Payment of rent on any lease prior to February 15, 2020
- Payment on any utility for which service commences before February 15, 2020
Employee retention tax credit.
If you retain your employees during the COVID-19 crisis, you might be able to obtain a payroll tax credit under the CARES Act. Your business is eligible if it has been partially or completely shut down due to a government order, or if you have experienced a 50% or greater decrease in quarterly sales revenue because of the COVID-19 pandemic. If your company has 100 or fewer full-time employees, you can claim a credit for wages paid to all of them, up to $10,000 a person. If you employ 100 more workers, you can claim a credit for your employees who were furloughed or had their hours cut due to your company’s decreased revenues, or its partial or full closure. It is important to know that the employee retention tax credit is not applicable if you obtain a paycheck protection loan.