Recognizing the negative economic impact of effectively shutting down a wide swath of industries across the United States to slow the spread of the coronavirus, on March 27, 2020, the Trump administration signed the most substantial stimulus bill in history. The Coronavirus Aid, Relief, and Economic Security (CARES) Act consists of a number of initiatives to help workers and businesses financially survive the rising number of shelter-in-place orders that are in effect.
The $2.2 trillion government stimulus package includes payments to adults and their dependents on top of grants and loans available to businesses of all sizes.
What the Stimulus Means for Workers
In an effort to keep Americans afloat during the pandemic, the CARES Act offers several potential forms of relief.
“There are several individual tax provisions included, such as the much talked about stimulus credit payments ($1200/$2400), in addition to a $300 charitable deduction, and relief from 401k withdrawal penalties,” says Greg O’Brien, CPA, CTC, president of Greg O’Brien CPA PC.
Americans who earned less than $75,000 in 2018, or $150,000 as a married couple, should receive $1,200 or $2,400, respectively, in the next few weeks in the form of a check or direct deposit. Taxpayers with qualifying children under age 16 will also receive an additional $500 per child.
The Washington Post created a helpful calculator to help you determine what you can expect, or not, in your check.
On top of the free money being issued, unemployment benefits have been extended and expanded to include gig workers, though exactly how is still being worked out.
Employees now out of work are eligible to receive up to 26 weeks of state support, and the federal government has added another 13 weeks to that coverage. In addition, workers will receive an extra $600 per week on top of their state benefits until July 31, 2020.
What the Stimulus Means for Small Businesses
The CARES Act also designated $377 billion, or about 19% of the total package, to sustain small businesses during the pandemic. Companies with 500 or fewer employees are generally considered small businesses but check with your accountant or attorney to confirm you qualify.
That aid comes in the form of emergency grants and forgivable loans.
The emergency grants are part of the Small Business Administration’s (SBA) Economic Injury Disaster Loan (EIDL) program.
While the EIDL loans are not forgiven, borrowers may be eligible to receive an emergency cash advance of $10,000 against their loan, which can be forgiven as long as it is spent on maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments, or repaying debt that could otherwise not be paid due to coronavirus-related revenue losses.
Above that amount, loans up to $10 million are available with low interest (3.75%) rates, and up to 30-year repayment plans for companies affected by the coronavirus, O’Brien explains.
The Paycheck Protection Program (PPP), which is a separate initiative, “allows any eligible small business to apply for a non-recourse loan [“one where the borrower’s other assets are not on the hook if they cannot pay back the loan”] based on your average monthly payroll costs over the past 12 months times 2.5,” says O’Brien. “Payroll costs include wages, healthcare costs, employer retirement contributions, and local taxes.” As long as you can certify that your business has suffered financially due to the pandemic, you may qualify.
“Once your loan amount is established, you have the opportunity to have the full loan forgiven if you spend the funds over the following eight weeks on payroll, rent, utilities, or business mortgage interest,” according to O’Brien. The key is retaining all of your workers during the eight weeks following the issuance of the loan. Any workers who are laid off reduces the amount of the loan that may be forgiven.”
The amount of a loan not forgiven will turn into a two-year, 1% non-recourse loan, with payments deferred for six months. No matter how you look at it, it’s “very attractive debt,” O’Brien points out.
In addition, “lost in the bill are also some very important tax provisions all business owners should reach out to their tax advisors about, including the chance in the business interest deduction, change in net operating loss rules, and changes to real estate, including fixing a TCJA [Tax Cuts and Jobs Act] issue with qualified improvement property. There are several opportunities for proactive tax savings for savvy business owners buried in the bill,” according to O’Brien.
Small businesses can begin to apply for PPP funds on April 3, 2020.