Help is on the way. With many of our clients struggling with business disruptions, we know the hard decisions you face every day, especially about whether to lay off employees. The Coronavirus Aid, Relief, and Economic Security Act (CARES) is a financial stimulus package designed to help. Small businesses will be able to get a loan of up to $10 million to stay afloat to help offset the financial challenges created by the COVID-19 pandemic. The CARES Act is now law, but there are still many questions on timing and administration. However, it’s important to understand that significant financial relief is on its way.
As you read about these measures, while weighing heavy decisions about what steps to take next with your business or employees, we encourage you to reflect if these forthcoming provisions can impact those choices.
Small Business Loans with eight weeks of covered costs forgiven
A key piece of the largest relief bill in recent memory is the more than $370 billion in funding for small businesses. Businesses with fewer than 500 employees are eligible for up to $10 million in loans, which can be used for payroll and other expenses, such as insurance premiums, mortgage interest, rent or utilities.
The loans, available at financial institutions currently extending SBA loans and other non-traditional lenders, would be completely forgiven if the employer continues to keep the employees or hires back those who already have been laid off, and uses the funds for covered expenses.
Recipients of a loan made under the Paycheck Protection Program will be eligible for loan forgiveness in an amount equal to the sum of the following costs incurred and payments made during an eight-week period beginning on the date of the loan origination:
Credits for retaining employees
Another bright spot for qualified business owners would be an employee retention credit, giving eligible employers a tax credit for keeping American workers employed during the COVID-19 crisis. Employers may be eligible for a refundable credit of up to 50% of qualified wages up to $10,000 per employee against applicable employment taxes.
Please note: The CARES Act employer credits cannot be combined with Small Business Administration (SBA) loans. The details on all of this can be complex. We will be posting updates regularly to keep you informed as the situation unfolds.
Other relief efforts proposed include:
- Recovery rebates for individuals
- Direct payments to individuals, based on their 2019 tax filing returns, or their 2018 tax filings, if 2019 has yet to be filed
- Delayed employer payroll taxes
- Would allow employers to defer payment of the employer share of the Social Security tax (6.2%) paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022; employers would still be responsible for FICA tax on employee wages
- Relief for retirement plan participants impacted by COVID-19:
- Enhanced loan availability and relief for outstanding loan repayments
- Allows COVID-related distributions and waived early withdrawal penalty
- Waived Required Minimum Distribution (RMD) for 2020 calendar year
- Coverage of COVID-19 diagnostic testing by health plans at no charge
- Clarifies that COVID-19 diagnostic testing will be covered at no charge to health plan members if the developer requests emergency authorization from the FDA or if the test is developed and authorized by the state even if the test has not received approval from the FDA.
- Expansion of unemployment insurance
- Additional financial assistance to those on unemployment for qualifying individuals, as well as extended time for unemployment benefits
Next for the CARES Act
Now that it’s been signed into law, our government and regulatory bodies will have a period of time to issue further guidance to let companies such as Paychex know how to interpret the law.
The process and timing associated with getting access to the funds associated with the CARES Act is one of many unanswered questions that require further discussion with our contacts at the Small Business Administration and the IRS. Be confident that our compliance and legal teams are in active communication with our contacts at these agencies and will update you as soon as instructions are available.
We expect a chaotic few weeks before the processes for the SBA loans are established and implemented. In the interim, if you need access to capital you could consider your Financial institution or our trusted partner, Biz2Credit, that specializes in helping businesses obtain funding.
Finally, the CARES Act increases the maximum 401(k) loan that may be taken from a 401(k) account to $100,000 (formerly $50,000) as a short-term opportunity to gain access to cash.
As you navigate these unprecedented times, Paychex has services to guide you through that include an HR representative that can help you stay compliant. Please reach out to me directly with any questions or concerns at (646) 228-5529 or firstname.lastname@example.org.