Tax credits help business owners recover the cost of providing Coronavirus-related leave

If you’re a small and medium size business owner, this one’s for you. The IRS announced important refundable payroll tax credits that are much less talked about in the shuffle of COVID-19 relief efforts. These credits will continue to be important to businesses especially after states fully reopen, and employees may continue to find themselves to be sick with COVID-19, need to care for family members who are sick with Covid-19, and/or cannot come to work due to lack of childcare due to Covid-19.

Chris Strand, managing accountant at Ballast Tax and Business Services breaks down what small business owners need to know about this plan which has the goal to swiftly recover the cost of providing Coronavirus-related leave.

“There are two pieces to this tax credit which is available only to small and medium size business owners,” says Strand. “The paid sick leave credit and the paid family leave credit reimburses employers who provide up to 80 hours of sick leave for employees who are sick with Covid 19 or who must care for a family member with Covid 19. Secondly, it also reimburses employers who pay employees up to 10 weeks who must miss work due to the lack of available child care due to COVID-19.”

According to the IRS, not only does this cover wages, but It also covers health care costs for the employee, and employers are not required to pay FICA taxes on those wages.

“This is also available to self employed individuals,” says Strand. “The credit is refundable and the funds can be obtained quickly.”

In order to take advantage of the credit, the IRS states, employers simply deduct the credit amount from their payroll tax deposits for the current period. If there are more credits than payroll tax deposits, they can file to receive a check right away, not wait until the end of the year by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.

“To be clear, this only applies to wages paid to employees who come down with, or care family members who come down with, Covid 19. Or to wages paid to employees who lose their child care due to Covid 19,” Strand adds. “This pandemic has brought about challenges never before seen and rarely even foreseen in our business community. This tax credit can potentially provide a significant aid to those business owners striving to meet these challenges.”

For details about these credits and other relief, contact Ballast Tax and Business Services.

 

The Economic Injury Disaster Loan (EIDL) program

SBA disaster loan application form on the wooden surface.

The SBA’s Economic Injury Disaster Loan (EIDL) program provides vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing as a result of the COVID-19 pandemic. Federal Disaster Loans are available for Businesses, Private Nonprofits, Homeowners, and Renters. This isn’t new – it’s a similar program to other loans available to declared victims of disasters such as hurricanes, tornados, earthquakes, fires, etc. However, for COVID-19, the program has been expanded and provides emergency grants of up to $10,000 – theoretically within three days – and low-interest loans up to $2 million.  

Who qualifies?

This program is for any small business with less than 500 employees (including sole proprietorships, independent contractors and self-employed persons), private non-profit organization or 501(c)(19) veterans organizations affected by COVID-19.

Businesses in certain industries may have more than 500 employees if they meet the SBA’s size standards for those industries.

What are the Loan terms?

According to the SBA, no matter the amount you apply for, the Economic Injury Disaster Loan advances funds (up to $10,000) and will be made available within days of a successful application.  This loan advance will not have to be repaid, so in other words, the first $10k of the loan is effectively a grant. 

The amount of your grant (up to $10,000), which you request when you fill out your EIDL application, is determined by the number of employees you have at $1,000 per employee with a maximum grant of $10,000. For example: If you have three employees, you will receive $3,000. That amount will be deducted from the loan forgiveness amount of any PPP loan you receive and should arrive within days of your EIDL loan application, according to the SBA.

You can apply for an EIDL of up to $2 million to provide working capital for expenses such as fixed debt and payroll costs. The interest rate is 3.75% and the loan term can be as long as 30 years. The COVID-19 EIDL includes an automatic one-year deferral on repayment, though interest begins to accrue when the loan is disbursed.

How to Apply

Unlike the Paycheck Protection Program, which requires you apply with a local lender, for an EIDL loan, you don’t have to go through a bank. You can apply through the SBA on their website.

The application process has been streamlined and the SBA says it should take you two hours and ten minutes or less to complete.

The application can be found on the SBA Disaster Assistance web page. You must apply no later than Dec. 16, 2020 in most states. A few have extended the deadline to Dec. 21.

You Can Apply for a PPP Loan Too

SBA guidance allows you to apply for a PPP loan in addition to an EIDL, so long as you don’t use the funds from each loan for the same expenses.

For example, if you decide to apply for a PPP loan and use those funds strictly for payroll, you cannot subsequently use funds from an EIDL for payroll, as well. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.

Sources: https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance, https://www.congress.gov/bill/116th-congress/house-bill/748/text

Please Note:Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized tax advice from Ballast Tax Services.   To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Ballast Tax Services is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.  

Ballast Tax and Business Services does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Ballast Tax’s  website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

PPP (Paycheck Protection Program) Loans Summary

Paycheck Protection Program PPP Loan. Wooden cubes on the desk.

Paycheck Protection Program (PPP) is part of the $349 billion Federal stimulus package designed to provide access to cash so that businesses can keep paying their employees and other expenses such as health insurance premiums, rent or mortgage payments and utilities.

Paycheck Protection Program PPP Loan. Wooden cubes on the desk.

Who qualifies?

If you own a business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern with under 500 employees and have been affected by Coronavirus (COVID-19) you may be eligible. Also, if you’re a sole proprietor, independent contractor, or self-employed you also may be eligible for these loans. You also had to be in business as of February 15, 2020. 

How do you apply?

Since the program opened, April 3, there have been a flood of applications, the SBA recommends that you first consult with a local lender with whom you already have an existing lending relationship, as to whether it is participating in the program.

However, you can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.

You only can apply once, so if you try and apply with multiple banks, ask for a guarantee that the lenders will contact you before submitting your file, so you are not triggered for fraud.

If you wish to begin preparing your application, you can download a copy of the PPP borrower application form to see the information that will be requested from you when you apply with a lender. The program is available now through June 30, 2020.

Loan Details and Forgiveness

According to the SBA, Individual businesses may be eligible for up to $10 million in forgivable loans if employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities.

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.

Loan forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. When calculating your loan, salaries will be capped at $100,000.

Otherwise this loan has a maturity of 2 years and an interest rate of 1%.

Tracking 8-Week payroll

According to guidance issued by the Department of Treasury on April 2, 2020, the eight-week period begins on the first day lenders disperse funds to businesses. This regulation also noted lenders should issue funds no later than 10 calendar days from the date of loan approval.

Beware of Scams

It’s as important as ever to be vigilant about consumer protection.

Make sure you never provide private information – social security numbers, credit card details, or banking information – to anyone calling, emailing or some other way claiming to be from the Treasury Department or the SBA offering you grants or stimulus payments. Scammers could use this information to apply for a loan on your behalf.

Be wary of any false promises for quicker loans and faster processing. It is best to go through a federally backed credit union or traditional SBA lender, as they’ll be the most familiar with the program and as such get up to speed on new processes sooner.

 

Source: These summaries are based on interpretations of the CARES Act; U.STreasury guidance released March 31, 2020U.S. Treasury guidance released April 2, 2020; and FAQs released April 7, 2020.

 

Please Note:Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized tax advice from Ballast Tax Services.   To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Ballast Tax Services is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.  

Ballast Tax and Business Services does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Ballast Tax’s  website or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

 

COVID-19 Update

We want you to know that Ballast Tax and Business Services is taking all the necessary precautions to keep business running as usual while our communities deal with the spread of the Coronavirus (COVID 19). We’ve issued a protocol to all our Ballast Tax staff for keeping the workplace clean and safe and for the best interest of employee and client health.

  • Our accountants will be replacing all in-person meetings for the foreseeable future with either a web meeting (via Join.me) or conference call. We would be happy to provide further instructions for this type of meeting.  
  • While we traditionally still receive some tax forms via hardcopy in the mail, we are asking that all clients who are able, please scan your return and electronically submit paperwork through our secure portal.

  • If you are unable to scan your documents, please note that we will delay processing any hand-mailed paperwork we receive for at least a week, to avoid potential virus transmission on surfaces.

  • We will be suspending our receipt of cash payments, but will continue to accept payment by check, money order, and all major credit cards.

  • We will be automatically filing extensions for all individual returns as we away a formal tax deadline extension from the IRS.

  • In the event that our offices were to close, Ballast Tax and Business Services can meet your service needs under many different circumstances. Our accountants have the ability to work remotely using our secure access technology to continue to serve you.
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  • We have technology that shifts our main phone service line to cellphones, so you should continue to call Ballast Tax and Business as usual.
  • We will keep you informed of any changes and potential extensions the IRS may make as things develop.

If you need any additional information on some best practices to reduce the spread, please read best practices issued by the CDC.

Thank you for your cooperation.