UNDERSTANDING THE FEDERAL STIMULUS PACKAGE*
We understand it can be overwhelming to digest the Federal Stimulus Package, so here is a more concise breakdown:
Paycheck Protection Program
The Paycheck Protection Program (PPP) will provide cash-flow assistance through 100 percent federally guaranteed loans (of up to $10 million) to small businesses through December 31, 2020. Importantly, if recipients of a PPP loan maintain payroll through June 30, 2020, and use the funds for eligible purposes, the loan turns into a grant and is forgiven. If a business has already laid off employees, it has until 30 days after the enactment of the act to rehire these employees in order to be considered to have maintained payroll.
The covered loan period for this program begins on February 15, 2020, and ends on June 30, 2020. There is no fee for the loan and no personal guarantee or collateral are required. Businesses and nonprofits with 500 or fewer employees, entities that meet the current Small Business Administration size standards, sole proprietorships, independent contractors, the self-employed, and businesses with multiple locations if they employ no more than 500 employees per physical location.
A business that was in operation on February 15, 2020, and had employees for whom it paid salaries and payroll taxes or independent contractors is eligible for a PPP loan. PPP loans will be distributed in the community by SBA-approved lenders or Department of Treasury-approved PPP lenders.
Recipients of a PPP loan can use the funds for:
- Payroll costs;
- Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- Employee salaries, commissions, or similar compensations;
- Payments of interest on any mortgage obligation (not including any prepayment of or payment of principal on a mortgage obligation);
- Rent (including rent under a lease);
- Utilities; and
- Interest on any other debt obligations that were incurred before the covered period
“Payroll costs” include:
- Salary, wage, or similar compensation;
- Payment of cash tip or equivalent;
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits including insurance premiums;
- Payment of retirement benefit; and
- Payment of state or local tax assessed on the compensation of employees.
“Payroll costs” do not include:
- Compensation of an individual employee in excess of $100,000 annually, as prorated in the covered period;
- Taxes imposed or withheld;
- Compensation of an employee whose principal residence is outside of the U.S.;
- Qualified sick leave wages under Families First Coronavirus Response Act (already getting tax credit); and
- Qualified family leave wages under Families First Coronavirus Response Act (already getting tax credit).
PPP loans are eligible for loan forgiveness for an 8-week period beginning on the date of the origination of a covered loan. Loan forgiveness will be in an amount equal to the sum of the following costs incurred and payments made during the covered period:
- Payroll costs
- Payments of interest on any covered mortgage obligation (not including prepayment or payment of principal on a covered mortgage obligation)
- Payments on any covered rent obligation
- Covered utility payments
The amount of loan forgiveness will be reduced proportionally by any reduction in employees during the covered period compared to prior periods. Additionally, the loan will be reduced by the reduction in pay of certain employees in excess of 25 percent. As stated earlier, businesses can rehire employees already laid off and not be penalized.
To apply for loan forgiveness, lenders will require the following:
- Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the covered period, including:
- Payroll tax filings reported to the IRS;
- State income, payroll, and unemployment insurance filings;
- Documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments;
- A certification that the documentation presented is true and correct and the amount for which loan forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments; and
- Any other documentation the Administrator determines necessary
Lenders must decide if the recipient of the PPP loan receives forgiveness no later than 60 days after the lender receives an application for loan forgiveness. Canceled indebtedness will not be included in the recipient’s taxable income.
The interest rate for PPP loans cannot exceed 4 percent. Any portion of a PPP loan that is not forgiven will have a term of up to 10 years, repaid with fixed monthly principal and interest payments over the term.
Once the PPP loans are made available, businesses cannot have both an SBA disaster loan and a PPP loan for the same purposes. However, the act allows businesses with an Economic Injury Disaster Loan (EIDL) related to COVID-19 to apply for a PPP loan with the option to refinance that loan into the PPP loan. If a business has received an emergency EIDL grant award (described in the following section), that amount will be subtracted from the amount forgiven under the PPP.
Additionally, until January 1, 2021, the maximum 7(a) express loan is $1 million.
When can you apply?
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.
Where can you apply?
You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.
What do you need to apply?
You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.
What other documents will do you need to include?
You will need to provide your lender with payroll documentation.
The act establishes an emergency grant of up to $10,000 for eligible entities that have applied for the Small Business Administration’s Economic Injury Disaster Loans (EIDL) due to COVID-19. Eligible entities can request an advance on that loan which the SBA must distribute within 3 days. A business that receives an EIDL grant is not required to repay the advance, even if the business is later denied an EIDL loan.
Additionally, eligibility for EIDL loans will expand to include those operating as a sole proprietor or independent contractor and private non-profits during the covered period from January 31, 2020, to December 31, 2020.
During the covered period, the SBA will waive personal guarantees on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.
The SBA will approve businesses for an EIDL loan based on:
- the credit score of the applicant; or
- an alternative appropriate method to determine applicant’s ability to repay.
Recipients of the EIDL emergency grant can use the funds for:
- Providing paid sick leave to employees unable to work due to the direct effect of COVID-19
- Maintaining payroll to retain employees during business disruptions or substantial slowdowns
- Meeting increased costs to obtain materials unavailable from the applicant’s original source due to interrupted supply chains
- Making rent or mortgage payments
- Repaying obligations that cannot be met due to revenue losses
The act provides grants for training, resources, and education in the amount of:
- $240 million in grants for SBA Small Business Development Centers and Women’s Business Centers for counseling, training, and related services for small business owners impacted by COVID-19;
- $25 million for SBA to provide grants to associations representing resource partners to establish an online platform that consolidates resources across multiple Federal agencies and a training program to educate small business counselors on those resources to ensure counselors are directing small businesses appropriately; and
- $10 million for minority business centers for technical assistance for businesses.
The bill appropriates $17 billion for loan subsidies for certain loan payments. A covered loan is an already existing 7(a) (including Community Advantage), 504, or microloan product. Paycheck Protection Program (PPP) loans are not covered.
The SBA is required to pay the principal, interest, and any associated fees that are owed on the covered loans for a six month period starting on the next payment due. Loans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full 6 months of loan payments by the SBA.
The SBA must make payments no later than 30 days after the date on which the first payment is due, including if the loan was sold on a secondary market. Further, the SBA must encourage lenders to provide deferments and allows lenders, up until one year after enactment of the act, to extend the maturity of SBA loans in deferment beyond existing limits.
The bill increases eligibility for unemployment insurance to include the following circumstances:
- An individual is unemployed, partially unemployed, or unable or unavailable to work because:
- the individual has been diagnosed with COVID–19 or is experiencing symptoms of COVID–19 and seeking a medical diagnosis;
- a member of the individual’s household has been diagnosed with COVID–19;
- the individual is providing care for a family member or a member of the individual’s household who has been diagnosed with COVID–19;
- a child or other person in the household for which the individual has primary caregiving responsibility is unable to attend school or another facility that is closed as a direct result of the COVID-19 public health emergency and such school or facility care is required for the individual to work;
- the individual is unable to reach the place of employment because of a quarantine imposed as a direct result of the COVID public health emergency;
- the individual is unable to reach the place of employment because the individual has been advised by a health care provider to self-quarantine due to concerns related to COVID–19;
- the individual was scheduled to commence employment and does not have a job or is unable to reach the job as a direct result of the COVID-19 public health emergency;
- the individual has become the breadwinner or major support for a household because the head of the household has died as a direct result of COVID–19;
- the individual has to quit his or her job as a direct result of COVID–19;
- the individual’s place of employment is closed as a direct result of the COVID–19 public health emergency; or
- or the individual meets any additional criteria established by the Secretary for unemployment assistance under this section.
- An individual is self-employed or otherwise would not qualify for regular unemployment or extended benefits and meets the above requirements.
An individual is not eligible if he/she has the ability to telework with pay or is receiving paid sick or other paid leave benefits.
The expanded unemployment assistance provides people who are unemployed with an additional $600 per week on top of normal compensation from the state for up to four months until July 31, 2020. The bill also allows for an additional 13 weeks on unemployment insurance on top of what states currently offer. However, total time on unemployment cannot exceed 39 weeks. The expanded coverage period will begin on January 27, 2020, and end on December 31, 2020.
States are incentivized to waive the traditional one-week waiting period for unemployment compensation.
Individuals are eligible for a one-time direct payment equal to:
- Up to $1,200 for eligible individuals ($2,400 for eligible individuals married filing jointly), plus
- $500 per qualifying child
The payment amount will be based on your adjusted gross income for your 2019 tax return. If you have not yet filed your 2019 tax return, the amount will be based on your 2018 tax return. If you did not file in 2018, the amount can be based on your 2019 Social Security Benefit Statement or Social Security Equivalent Benefit Statement.
The payment amount will be reduced based on how much your income exceeds:
- $150,000 in the case of a joint return,
- $112,500 in the case of a head of household, and
- $75,000 in the case of an individual taxpayer, not head of household
The act allows the penalty for early withdrawal from an eligible retirement plan to be waived for coronavirus-related distributions of up to $100,000. The amount distributed may be repaid over a three-year period.
Coronavirus-related distributions means any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020, to an individual:
- who is diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
- whose spouse or dependent is diagnosed with such virus or disease by such a test; or
- who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease.
Additionally, the act temporarily waives required minimum distributions, the amount individuals are normally required to withdraw from certain retirement accounts, for calendar year 2020. By temporarily waiving this requirement, individuals are not forced to sell investments that may have recently fallen substantially in value.
The act provides for advanced refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS is instructed to waive any penalties for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit.
The CARES Act amends the Families First Coronavirus Response Act’s definition of an eligible employee for paid leave to include an employee who was laid off by an employer no earlier than March 1, 2020, had worked for the employer for at least 30 of the last 60 calendar days prior to being laid off, and was rehired by the employer.
Eligible employers can receive a refundable employee retention credit equal to 50 percent of the qualified wages (of up to $10,000 per employee) for each employee in the calendar quarter. The number of employees is determined by the average number of employees in 2019.
Eligible employers are employers who were carrying on a trade or business during 2020 and for which the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak. Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year.
For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.
The bill delays payment of 50 percent of 2020 employer payroll taxes until Dec. 31, 2021; the other 50 percent will be due Dec. 31, 2022.
This does not apply to businesses that receive a forgivable loan.
*Resource: American Booksellers Association