Although the CARES Act (ACT) covers many areas, I would like to share very important provisions where you may need to take immediate action.
• Economic Injury Disaster Loans (EIDL)
This loan application is time sensitive and I recommend an immediate application is made. The application can be found at https://covid19relief.sba.gov/#/ and it will take about 10 – 15 minutes to complete. These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits harmed by COVID-19. Applications are processed on a first-come, first-served basis and the grant should be paid within three days of applying for the SBA Economic Injury Disaster Loan (EIDL). The advance does not need to be repaid under any circumstance, and may be used to keep employees on payroll and/or to pay business expenses.
• Small Business Relief – Payment Protection Program Loans (PPP)
Companies with 500 employees or fewer that maintain their payroll during coronavirus can receive up to 8 weeks of cash-flow assistance. If employers maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven. Unlike the disaster loans, these forgivable loans are not tied directly to establishing losses suffered during the national disaster. The loan program is also available to sole proprietors, independent contractors and self-employed individuals.
Generally, the amount of the loan is capped at the lesser of $10 million and 2.5 times the average monthly payroll costs incurred in the one-year period before the date of the loan. However, for any employee who is paid more than $100,000 salary, their salary is capped at $100,000 for loan calculation purposes. The amount of the loan that is forgivable is the sum of the payroll costs, mortgage interest payment, rent, and utilities incurred or paid by the borrower during the 8-week period beginning on the loan origination date.
The mechanism for the application of the PPP loan will be provided by the SBA in the coming days. Almost every bank should be able to provide the loan application, however, specific SBA preferred lenders are recommended by the SBA. Many provisions usually applicable to an SBA loan will be waived for the PPP loan. (i.e. personal guarantees) We have a strong relationship with some of the preferred SBA lenders.
• Direct payments
Americans who pay taxes will receive a one-time direct deposit payment of up to $1,200, and married couples will receive $2,400, plus an additional $500 per child. The payments will be available for incomes up to $75,000 for individuals and $150,000 for married couples.
• NOL Carrybacks
Net operating losses (NOLs) incurred in 2018, 2019, and 2020 can be carried back five years and fully offset taxable income. This could be significant benefit to corporations that recently had net operating losses which can now recoup prior taxes paid.
• Use of retirement funds
The bill waives the 10% early withdrawal penalty for distributions up to $100,000 for coronavirus-related purposes, retroactive to Jan. 1. Withdrawals are still taxed, but taxes are spread over three years, or the taxpayer has the three-year period to roll it back over.
• 401(k) Loans: The loan limit is increased from $50,000 to $100,000
• RMDs suspended: Required Minimum Distributions from IRAs and 401(k) plans (at age 72) are suspended.
For assistance with your loan application and/or guidance on choosing the best benefit for your business, please contact us at 516.248.7361 or bbenic@bbcpas.com.