The Coronavirus Aid, Relief and Economic Security (CARES) Act, and the Families First Coronavirus Response Act include provisions to help businesses cover critical operating costs and provide tax relief as a result of the coronavirus pandemic. We have summarized the important points of the CARES Act and compiled key resources for your business.
Paycheck Protection Program
The CARES Act provides federally guaranteed loans to small businesses to cover business operating costs for eight weeks. These loans may be fully forgiven (including interest) if the small business uses the loan proceeds for payroll costs (including benefits), mortgage interest, rent and/or utilities while maintaining their payroll during the crisis. Small businesses interested in this program should contact their local Small Business Administration lender, federally insured depository institution, or federally insured credit union to get more detailed information.
Employee Retention Tax Credit
The CARES Act provides a refundable payroll tax credit up to $5,000 per eligible employee for businesses impacted by COVID-19.
The credit is available to employers whose:
- Operations were fully or partially suspended due to a COVID-19-related shutdown order.
- Gross receipts declined by more than 50% when compared to the same quarter in the prior calendar year.
If there are fewer than 100 full-time employees, the business may claim the tax credit on the wages of all employees.
Economic Injury Disaster Loans (EIDL)
The CARES Act expands eligibility for access to Economic Injury Disaster Loans to include Tribal businesses, cooperatives, and ESOPs with fewer than 500 employees, or any individual operating as a sole proprietor or an independent contractor during the covered period (Jan. 31, 2020 to Dec. 31, 2020). For eligible businesses that have applied for an EIDL loan due to COVID-19, the Act also establishes an Emergency Grant enabling the business to request up to a $10,000 advance of that loan. This can be forgiven if used to:
- Provide paid sick leave to employees
- Maintain payroll Meet increased material costs
- Make rent or mortgage payments Repay obligations that cannot be met due to revenue losses
Sick and Family Leave Tax Credits
- The Families First Coronavirus Response Act establishes credits for sick and family leave costs for businesses with fewer than 500 employees.
- Businesses are eligible to receive refundable tax credits to help offset the costs associated with providing sick and family leave. Refundable credits are also available for businesses with no employees (e.g., sole proprietors).
Understanding Which Benefits Your Business Can Use
It’s important to note that certain provisions described above cannot be used in conjunction with others. Some considerations when determining which programs to use:
- The same wages cannot qualify for both the sick and family leave tax credits and the Paycheck Protection Program.
- The same business costs cannot be covered by both the Paycheck Protection Program and Economic Disaster Loans.
- The same wages cannot qualify for both the sick and family leave tax credits and the employee retention tax credit.
- You must choose between the Paycheck Protection Program or the employee retention tax credit and deferral of payment of employer payroll taxes – you may not choose both.
Benefits generally limited to employers with up to 499 employees (also for self-employed individuals):
- Sick and family leave tax credits.
- The Paycheck Protection Program.
- Economic Injury Disaster Loans (EIDL).
Benefits not limited by employer size (generally also available to self-employed individuals) include:
- An employee retention tax credit.
- The deferral of payment of employer payroll taxes.