This month The U.S. Treasury and Small Business Administration (SBA) launched two new programs to help small businesses hurt by the COVID-19 pandemic.
You can view two web pages describing these programs at the following links Paycheck Protection Program (PPP) and Coronavirus Aid, Relief, and Economic Security Act (CARES Act). .The web pages listed above provide information for borrowers and lenders as well as a sample application of a small business loan. These programs are set up to help struggling businesses retain workers rather than laying them off.
Four Ways New Programs Help Small Business Keep Employees
Below is info on how the PPP and CARES Act help small businesses retain employees during the current national emergency.
Small Business Loans
The PPP provides low-interest loans of up to $10 million to finance certain business expenses incurred between February 15 and June 30, 2020. The covered expenses include payroll costs (excluding wages over $100,000), rent, utilities, and mortgage interest (over an eight-week period).
This loan program has a special feature for businesses that retain workers. The US government will cancel the business debt (via a grant) based on how many workers a business retains and the extent to which it reduces their salaries.
If a company has already let its workers go and reinstates their jobs and salaries prior to June 30, the employer can apply for a loan forgiveness grant under this program.
The Max a Small Business Can Borrow
Under the new program, a small business can borrow up to 250% of its average monthly “payroll costs” (based on a 12-month look back), not to exceed $10 million.
The program uses the following definition of small business to determine eligibility. The business must employ no more than500 employees, including full-time and part-time, seasonal employees or temporary employees.
Employers in the hospitality industry (with a NAICS code starting with “72’) get some special considerations. If businesses in these categories have 500+ employees across multiple locations, they can use the headcount in each discrete physical location. If any specific location has less than 500, the employer can apply for a loan.
Employee Retention Tax Credits
The CARES Act provides employee retention assistance for businesses and non-profit organizations that retain workers during the pandemic. This program is not available to businesses that apply for PPP loans.
For 2020, the Act provides a refundable tax credit equal to 50 percent of wages (including qualified health plan expenses) of up to $10,000 per worker. This year the max available is $5,000 per employee (50% of $10,000).
Employers can claim this credit against quarterly payroll taxes. The US Treasury can make advance payments of the tax credit. The agency can also waive penalties for employers who do not pay their applicable payroll taxes due to anticipation of getting this credit.
To be eligible for this tax credit, a business must show it had to suspend operations because of an official government order related to the pandemic or that its gross receipts declined by at least 50% when compared to the same quarter last year.
Under the CARES Act, small business and self-employed individuals can defer some of their payroll taxes this year. Businesses and the self-employed can defer the company’s portion of Social Security payroll tax (6.2%) owed through December 31, 2020, for up to two years.
Businesses and individuals do not need to prove specific difficulties related to COVID-19. However, if a business takes advantage of loan forgiveness under PPP, it cannot use this tax deferral.
This provision does not relieve the taxpayers’ obligation to pay. Rather, it allows folks to delay the payments. If a business or individual defers tax payments, they must pay them in 2 future installments, 50% by December 31, 2021, and 50% by December 31, 2022.
Unemployment Short-time Compensation
The CARES Act also gives federal support to states to pay unemployment benefits through “short-time compensation programs.” Under these programs, states can pay unemployment benefits to workers when their employers reduce their hours (typically 40% to 60%).
About 25 states currently offer short-time unemployment compensation programs. Businesses can voluntarily participate in their state’s program. This program provides incentives for the remaining states to launch these programs, and for employers to offer them.
If you need help in determining how these new programs could help your business, please contact us.