The following is a list of the current federal regulatory and relief efforts that have been passed by the federal government to aide families and businesses during the Covid-19 crisis. This list is continuing to evolve and will be updated as further measures are passed.
Last Updated: April 3, 2020.
April 3rd – Most banks do not appear to be processing PPP loan applications yet, as they are waiting for further regulatory guidance. See updates below about the Employee Retention Payroll Tax Credit and the option to defer payroll tax payments.
March 31st – See a comparison chart of SBA loan options with links HERE. See further updates to unemployment and SBA loan sections as marked below.
On March 27, 2020 a $2 Trillion Stimulus deal passed. It is a massive bill with lot’s of different provisions in it, many to help small business owners and the self-employed.
A few of the main provisions of the bill:
Stimulus Checks to Most Americans
Stimulus checks will be available to the majority of Americans at an amount of $1,200 per adult and $500 per child (under 17). These checks will phase out at higher income levels. Use this handy calculator from the Washington Post to calculate your expected stimulus amount. As of now, it appears that stimulus checks would either be automatically direct deposited or mailed to the last address the IRS has on file. If you haven’t yet filed your 2019 taxes, they will use your 2018 tax return to determine amounts owed.
My take: If you made LESS in 2019 than 2018, you may want to file your 2019 taxes as soon as possible to make sure you get the full amount of the stimulus you are entitled to. If you haven’t filed your 2018 taxes for any reason, you’ll want to do that as soon as possible to make sure you receive a stimulus. Alledgedly stimulus checks are supposed to be out by April 17. Importantly, if you don’t receive a stimulus check, you can check in with the IRS. Know that if you qualify and don’t receive one, you will still be able to take a credit on your 2020 taxes which will reduce your taxes by the amount of the credit.
Significant Expansion of Federal Unemployment Benefits
Significant expansion of federal unemployment benefits, including increases in the amount of benefits that unemployed individuals will be eligible for, the length of time they can claim unemployment, and who can claim it (it is expected that it will be expanded to include certain self-employed people and freelancers who typically are ineligible. Calculation of your benefit would likely be based on previous tax returns). This bill also allows for the partial payment of unemployment for those who have had hours reduced, and allows for workers to be “re-hired” by their employers after the emergency situation subsides.
March 31st update – Unemployment benefits have been expanded as follows through the new Pandemic Unemployment Assistance:
- An additional allowance of 13 weeks of unemployment benefits. This brings the total for most states to 39 weeks.
- Up to an additional $600 a week in benefits (total benefits not to exceed their previous salary). This additional payment is available through the end of July 2020.
- Unemployment now applies to self-employed and “gig” workers who are not traditionally covered.
- For employers lay off or furlough employees who take unemployment for Covid-19 related reasons, it will NOT impact unemployment insurance rates for the employer.
- The requirement that you need to be looking for work elsewhere is waived. Employees can be re-hired (and should come off of unemployment when they are).
My take: This is a massive overhaul of unemployment, and one that is way overdue. The definition of who qualifies as “self-employed” is a little fuzzy and is likely to apply mainly to 1099 and “gig” workers. The flip side is that the large increase in unemployment benefits could incentivize people NOT to work, as you could be paid your full wage through unemployment. That said, these benefits only kick in if you are laid off, NOT if you quit.
March 31st Update – Note that as this bill is new, many state unemployment websites have NOT been updated to reflect the changes in the bill, which is adding to the confusion around who qualifies. This is especially true for the self-employed. You can try to fill out an application to the best of your ability, or call their office to discuss (though wait times are expected to be long).
Expansion of Emergency Loans and Grants to Small Businesses
A whopping $349 billion (with a B!) has been put aside to help small businesses who are experiencing hardships due to Covid-19. Much of this money may NOT require repayment under specific conditions (i.e. FREE MONEY). See below for more information on this.
March 31 Update– There are two major types of SBA loans you can apply for to help with disaster relief. The loans are quite different in their details and special features. See a comparison chart of SBA loan options with links to apply HERE.
SBA Economic Injury Disaster Loans (EIDL) – see further information about these low-interest loans (3.75% for most businesses) below. These loans must be used for payroll costs, increased material costs, rent or mortgage payments, or for repaying obligations that cannot be met due to revenue losses.
Importantly – the bill provides that those who apply for an SBA EIDL loan due to Coronavirus hardship can receive up to a $10k advance within 3 days of the application being submitted. THIS $10K ADVANCE DOES NOT NEED TO BE REPAID, EVEN IF THE LOAN APPLICATION IS DENIED. Any amount borrowed ABOVE the $10k advance must be paid back. These loans have low interest rates, can be up to 30 years in length, and payment can be deferred up to 4 years.
March 29th update – the new streamlined application has now been updated and allows you to request the $10k advance immediately while applying! Check out the application here and GET IT IN ASAP – it only takes about 15 minutes to complete!: https://covid19relief.sba.gov/#/
My take: Holy free money, batman!! If your revenue has been impacted by Coronavirus in any way, this could be a GREAT option for a quick cash infusion. You do not need to have employees to take advantage of this, it applies to self-employed individuals without employees as well. APPLY FOR THIS TODAY! After the application, you can request the $10,000 advance that you get to KEEP. Additionally, these loans go up to 30 years and are at a MUCH lower rate than typical business loans, so this could be a great time to access cheap money. If you end up not needing it, there is NO PENALTY for early repayment.
Paycheck Protection Program – Loan Program with Possible Loan Forgiveness!
The maximum amount of this loan is 2.5 months’ worth of payroll payments (based off of the previous year’s average payroll). Maximum loan of $10M. (Salaries above $100k can’t be included in that calculation). This loan is FORGIVEABLE for payments on payroll costs, interest on a mortgage, rent obligations and utility payments for 8 weeks from the commencement of the loan. The amount of forgiveness can be reduced if the employer reduces the number of employees as compared to prior year, or if the employer reduces the pay of any employee by more than 25% of the last calendar quarter. You can re-hire workers you previously laid off due to Coronavirus and not be penalized on your loan forgiveness. Forgiveness is NOT automatic and must be applied for with proper documentation submitted. The terms of any amount of the loan that is not forgiven are 2 years at 1% fixed interest. There are zero prepayment fees if you decide to pay off early.
My take: The big benefit here is for employers. If handled correctly, this loan could put significant money into your pocket that would NOT have to be repaid. This can be a major lifeline to businesses that are struggling. You may want to re-hire previously laid-off workers to ensure you receive the full benefit of the repayment.
March 31st Update – the Application and Factsheet have been released. Banks are expected to start taking applications for this loan starting Friday, April 3rd. You must apply directly through a bank. I recommend starting with your own bank to see if they will be participating in the program, as it is expected that some banks will handle loans for current customers first. The timeframe is still up in the air, but its not unlikely that this loan will take several weeks to apply for, process, and close.
In the meantime, you can apply for an SBA loan to receive your $10k advance, as mentioned earlier. If you obtain the $10k SBA advance through the EIDL loan above AND receive a loan under the Paycheck Protection Program (PPP), you can roll your EIDL into your PPP loan. The $10k SBA advance will be subtracted from the forgivable portion of your loan (i.e. no double-dipping on the free money).
Payroll Tax Credits and Deferrals Available
In order to encourage employers to keep employees on payroll, tax credits and deferrals for payroll tax payments are available to qualifying business owners. See below for details on the two potential options.
Employee Retention Credit
The Employee Retention Credit is a refundable tax credit is 50% of up to $10,000 in wages paid by an eligible employer whose business has been financially impacted by COVID-19.
The credit is available to all employers regardless of size, including tax-exempt organizations. These are NOT available to businesses that take one of the SBA loans available (EIDL or PPP).
In order to qualify, one of the following must be true:
- The employer’s business is fully or partially suspended by government order due to COVID-19 during the calendar quarter.
- The employer’s gross receipts are below 50% of the comparable quarter in 2019.
These measures are calculated each calendar quarter.
The amount of the credit is 50% of qualifying wages paid up to $10,000 in total. Wages paid after March 12, 2020, and before Jan. 1, 2021, are eligible for the credit (until gross receipt go above 80% of the comparable quarter in 2019). Wages taken into account are not limited to cash payments, but also include a portion of the cost of employer provided health care.
Qualifying wages are based on the average number of a business’s employees in 2019.
Employers with less than 100 employees: If the employer had 100 or fewer employees on average in 2019, the credit is based on wages paid to all employees, regardless if they worked or not. If the employees worked full time and were paid for full time work, the employer still receives the credit.
Employers with more than 100 employees: If the employer had more than 100 employees on average in 2019, then the credit is allowed only for wages paid to employees who did not work during the calendar quarter.
How to receive the credit: Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit.
If the employer’s employment tax deposits are not sufficient to cover the credit, the employer may receive an advance payment from the IRS by submitting Form 7200, Advance Payment of Employer Credits Due to COVID-19.
Eligible employers can also request an advance of the Employee Retention Credit by submitting Form 7200.
My take: The PPP forgivable loan is generally a better option, as it is not limited in the amount of wages that can qualify. However, for those who do not get a PPP loan, this should be the next course of action. It’s not clear how easy it will be or how long it would take to actually receive any amounts due back over and above the amount that was offset against payroll taxes withheld. I would prepare for this not to be a straightforward situation. Work with your payroll provider if you wish to take advantage of this tax credit.
Deferral of Payroll Taxes Due
For companies that do NOT qualify for the Employee Retention Credit (i.e. they have not shut down operation or gross receipts are not down 50%), some cash flow relief is still offered.
Companies will be able delay paying the employer share of Social Security payroll taxes to the IRS. They would be delayed until Jan. 1, 2021, with 50% owed by the end of 2021 and the other half due Dec. 31, 2022. Companies’ share of the Medicare payroll tax will still be due.
My take: Be careful here. This is only delaying payment, but eventually, it will be due, and in two large sums. I don’t recommend this unless you are unable to obtain either SBA loan or the Employee Retention Tax Credit and you need the cash flow.
I’m continuing to monitor developments and will update as events happen. Check back often!
Tax Day Moved from April 15 to July 15
No extension needs to be filed. First-quarter estimated tax payments have also been moved from April 15 to July 15.
What does that mean for state income taxes?
It varies a bit by state, but most states have already followed suit and extended their tax deadline in tandem. Check your State’s Department of Revenue site for further guidance.
My take: If you think you are due a refund, I would plan to file as soon as possible. Delays in receiving income checks are likely and will be issued on a first-come, first-serve basis.
If you expect to owe, I would still work with a qualified tax professional to complete your tax return as soon as possible. This way you can at least determine what your tax liability will be, even if you don’t have to pay it until July. This will help you better plan for your cash flow and make sure you have the cash available to pay your taxes when the time comes.
Federal Tax Credits Available for Paid Leave Due to Coronavirus
On March 18th, The Families First Coronavirus Response Act was passed and is scheduled to be effective April 2, 2020. There are several provisions of this law, but some of the most impactful provisions for small business owners relate to new paid leave mandates and tax credits. In general, these provisions apply to all companies with less than 500 employees.
Details are still developing on exactly how this will work in practice, but here are the main points of the Act:
The Act expands the current Family Medical Leave Act (FMLA). The emergency expansion of FMLA means that employees must be able to take job-protected leave for covered events, which now include caring for a child under 18 years of age because the child’s school or place of care has closed due to Covid-19.
Benefits available: The first 10 days of this leave can be unpaid. The remainder of the 12 weeks is paid by the employer based on the number of hours the leave-taking employee would normally be scheduled to work, and the amount cannot be less than two-thirds of the employee’s regular rate of pay, and can’t exceed $200/day ($10,000 total).
The Act also contains a paid sick leave provision, which provides full-time employees who qualify 80 hours of paid leave. Payment is calculated based on the employee’s regular rate of pay. For part-time employees, it’s based on the average number of hours worked in a 2 week period.
The amount of paid sick time to be paid depends on the reason it is being taken:
Reason 1: If the employee is under a mandated quarantine or is confirmed or believed to be sick with Covid-19.
Benefits available: The employee’s regular rate of pay, up to a maximum of $511 per day for 10 days.
Reason 2: If the employee is taking care of someone else who is quarantined or a child who is out of school due to Covid-19.
Benefits Available: The employee’s regular rate of pay, up to a maximum of $200 per day for 10 days.
Exemptions exist in who is eligible (generally healthcare providers and emergency responders may not be eligible), and certain businesses with under 50 employees may be able to request an exemption if it would jeopardize the viability of the business. More expected to come on how businesses could apply for such an exemption.
How Do Companies Claim Their Tax Credit for Benefits Paid?
Companies are required to pay these benefits directly to their employees; however, they will be able to claim 100% of the benefits paid under the Act. The new credit is first used to offset the Social Security tax component of the employer’s federal payroll tax bill. Essentially this means they will get at least a portion of this money back through decreased payroll taxes. Any additional amounts still owed after offsetting the payroll tax liability will be issued as a payment to the employer for the excess. Details haven’t yet been released as to how/when this would happen.
What if I’m Self-Employed? Am I Still Eligible for a Tax Credit?
The good news is that self-employed persons are also eligible for a similar credit if they must step away from their business due to quarantine, illness, or caring for children under 18 who don’t have childcare.
The credit due is generally calculated the same as it is for employees above, though some estimation may be involved in determining typical average wages (more guidance expected to come on this). The credit will offset your federal income tax liability. For those who pay estimated tax payments, this means that you can reduce your tax payments by the amount of the credit. To the extent your credit exceeds your tax bill, the government will issue a payment for the excess (details still emerging on how this will occur and when).
My take: This is a win for both employers and employees alike, and may be an alternative to laying off employees who are unable to work. However, the big issue that has yet to be addressed adequately by the government is the cash-flow crunch this can create for employers who have to float the cash to pay employees and then wait for reimbursement. For self-employed individuals who don’t have steady revenue coming in, the tax credit may not help cash flow as quickly as needed. Developments are still continuing and I’m hoping for a solution to the temporary cash-crunch this may cause for employers.
Note that some states are offering low or even zero-interest-rate loans to businesses adversely affected by Covid-19, which could be an option while employers wait for their reimbursements to come through.
Federal Coronavirus Disaster Loan Program (EIDL Program)
The U.S. Small Business Administration (SBA) is offering an Economic Injury Disaster Loan Program (EIDL) to many businesses negatively impacted by Coronavirus. These are low-interest loans at a rate of 3.75% for small businesses and 2.75% for non-profits.
How to Apply?
Try this link first for the electronic application: https://disasterloan.sba.gov/ela/Account/Login. If that link isn’t working, you may have to download the forms and following the instructions to submit here: https://disasterloan.sba.gov/apply-for-disaster-loan/index.html.
Go through the 3-step application process. In the application, select “Economic Injury” as the loan type. You’ll need tax returns and other financial documentation to complete the loan application.
My take: In general, I recommend businesses DON’T layer on additional debt during this time if they can help it. I advocate for tight expense control and getting creative to find ways to bring in cash during this time period. If debt is unavoidable in order to keep the doors open, SBA disaster loans (or other loan programs that may be available in your state), are significantly preferable to layering on credit card debt which has significantly higher average interest rates.
If you think you may need this assistance, its best to apply sooner rather than later in order to get in line. You can always opt-out if you are given the option.
Note: Many states are offering their own loan and/or grant programs geared at small businesses. Check your state website for more information. Other grant programs are also being offered by businesses such as Facebook and Amazon (however these are limited and likely to be very competitive).
If you are self-employed or own a small business, check out my FREE Covid-19 Small Business Survival Guide for more tips on how to manage through this crisis situation.
Learn more about Jamie Trull here.