Publications

The United States Congress recently passed a relief bill known as the Coronavirus Aid, Relief, and Economic Security Act, or simply, the “CARES Act”. The CARES Act has several provisions that may help small businesses. The bill aims to assist Americans over for the next four to six weeks given COVID-19's widespread disruption of the economy. While far from exclusive, the $2.2 trillion Act includes two main categories of economic stimulus: tax deferral and loans.   

Payroll Taxes 

• The payment of the 6.2% employer share of social security taxes on employee wages for the period starting March 27, 2020 through the end of this year will be delayed and can be paid in two halves:  one being at the end of 2021 and the other at the end of 2022. 

• Some small businesses may not have to pay the employer share of social security taxes at all during some calendar quarters this year and may even receive payments from the federal government instead. 

• Companies can qualify for this economic benefit in one or two ways. 

• The first is when during a quarter a small business’ activities are “fully or partially suspended” by a government order limiting “commerce, travel or group meetings” due to coronavirus. [For example: Illinois is currently under a stay at home order, whereby most non-essential small businesses are suspending operations] 

• The second basis is if a small business suffers more than a 50% drop in gross receipts in a quarter this year compared to the same quarter last year.  

• The relief in that case lasts through the first quarter when gross receipts recover to more than 80% of gross receipts during the same quarter in 2019. 

• Companies falling into either of the above two categories will get a tax credit. If the credit exceeds the employer share of social security taxes they would otherwise owe for a quarter, the government will send a check for the excess. 

• The credit is 50% of wages paid to employees during covered quarters. The total credit for all covered quarters is capped at $5,000 per employee. Wages include premiums paid by employers for group medical insurance. 

• Companies that had an average payroll during 2019 of 100 or fewer employees can claim a credit on wages paid to all employees. Larger companies can claim the credit only on wages paid to employees who are “not providing services” due to a government stay-at-home order or collapse in customer demand. 

• The credit can be claimed only on wages paid after March 12, 2020. 

Loans 

• In addition to the tax benefits, the government is providing some potential relief in the form of loans.  The Small Business Administration (“SBA”) will guarantee up to $349 B in loans of up to $10M through participating private lenders. However, the loans must be used to pay payroll costs, mortgage interest, rent, utilities and interest on other debt that was outstanding before January 31, 2020.  

• The key operative word in small business loans is small, meaning companies with up to 500 part-time and full-time employees. 

• There are some exceptions in a few industries where companies with more employees are still considered small businesses under the rules. 

• The actual amount a small business can borrow is two-and-a-half times average monthly payroll costs during the year leading up to March 22, 2020 plus refinancing for any SBA emergency economic injury disaster loan (maximum amount $2 million) borrowed between January 31, 2020 and when the new loans authorized in the CARES Act become available.  

• The total amount a company can borrow is capped at $10 million. 

• The loans do not require collateral, nor do they require a personal guarantee. 

• The interest rate cannot exceed 4%.  

• Payment of interest and principal will be deferred for the first six months to a year. 

• Repayment of part of the loan will be forgiven and will become a grant.  

• The amount forgiven is the payroll costs, mortgage interest, rent and utilities the borrower pays during the first eight weeks after the loan is made. 

• Typically, when repayment of a loan is forgiven, the borrower must report the amount as taxable income.  

• This does not have to occur in these cases. 

• Any remaining loan balance must be repaid over up to the next 10 years after the borrower applies to forgive part of the loan. 

• The US government will cover the remainder of the tab and pay lenders any remaining part of the loan that is forgiven. 

• Small businesses that are interested in these loans should approach a bank or other lender that makes loans through SBA programs.  

• Any of these loan applications are required to be processed within 60 days.  

In these difficult times, Tressler LLP can help you stay informed on legislation and the impact it has on your small business. We offer personalized continuity planning and legal advice. Feel free to contact me for a complimentary consultation at momalley@tresslerllp.com or by phone at (312) 627-4052.