CARES Act Update: Loans, Tax Relief and Other Information

Posted By Mike Meyer, Wednesday, April 1, 2020

making calculations

By Cognos HR

As you likely know, the recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act legislation includes important programs and provisions to help keep your employees on payroll during the COVID-19 crisis.

While widely available, the benefits of these programs are complicated and you cannot choose all of them, so you will need to decide how to best utilize them. Here's a link to a detailed guide to help with that process.

Below is a summary of the three new programs aimed at providing assistance with payroll expenses during this crisis. We strongly recommend speaking with your accountant and financial advisors about these decisions.

Small Business Administration (SBA) Paycheck Protection Loan Program (PPP Loans): This new loan program will provide eligible businesses of fewer than 500 employees with cash to meet payroll, including benefits, and other fixed costs—such as rent, interest on mortgages and utility payments—for up to eight weeks. This is different than the existing Economic Injury Disaster Loan (EIDL), which is also available through the SBA.

  • Loan Amount: The maximum loan amount would be 250% of the employer's average monthly payroll costs, capped at $10 million. The law expands eligibility for SBA loans and aims to speed up the approval process. Your bank will help in this.
  • Loan Forgiveness: Different factors determine the level of forgiveness. If the borrowing business demonstrates that the loan was used to maintain previous payroll or pay other fixed costs, the loans and any interest due would be eligible for very generous loan forgiveness—and the forgiven amounts would not be taxable.
  • Loans will be available starting Friday, April 3, 2020. Here's a link to the recently released PPP Application from the Treasury. We recommend starting to prepare for the application now.
  • Helpful Resources: Click here for a detailed guide and checklist on qualifying for the new loan program from the U.S. Chamber of Commerce. Here's a recent link from the U.S. Department of the Treasury that includes guidelines for borrowers.

50% Employee Retention Tax Credit: This program allows employers (regardless of size) uniquely affected by COVID-19 to claim a refundable tax credit against the employer portion of payroll tax equal to 50% of certain wages paid to an employee from March 13, 2020, through the end of the year.

  • Only $10,000 of wages can be taken into account for any employee.
  • This 50% credit would be available to businesses that have had their operations fully or partially suspended by government order due to COVID-19, or that experienced a 50% decline in gross receipts during a 2020 calendar quarter when compared with the same quarter in 2019.

Social Security Tax Deferral: The ability to defer the payment of the employer portion of Social Security taxes (6.2% of wages) for the remainder of 2020 is another provision that is available to employers of all sizes. Fifty percent of those deferred taxes would have to be repaid by the end of 2021, with the remainder due by the end of 2022.

Restrictions, Next Steps and What Programs You Can Choose (aka the Small Print)

Each of these programs provide generous tax subsidies to assist employers, but you cannot choose all of them, so you'll need to make choices.

  • If you obtain one of the new SBA loans, you are not eligible for the 50% employee retention tax credit.
  • If you have a new SBA loan forgiven, you cannot take advantage of the Social Security tax deferral.
  • If you claim the 50% employee retention credit, you will no longer be eligible for an SBA loan.
  • If you take advantage of the Social Security tax deferral, you will no longer be eligible to have your SBA loan forgiven.
  • If you'e already applied for or received SBA EIDL loans, you can refinance the EIDL into the PPP for loan forgiveness purposes. While you can apply for both, you cannot take out an EIDL and a PPP loan at the same time and for the same purposes.

To be clear, as of today, no one is applying for PPP loans, but you can start preparing everything you need to apply starting Friday, April 3. It's important to carefully evaluate these programs, since the benefits could vary greatly depending on which path you choose. More details and further guidance will be released from the SBA and U.S. Internal Revenue Service.

Cognos HR is a human capital consulting organization that possesses industry vision and expertise. It provides its clients with a blend of strategic consulting, technology and day-to-day human resources services that help drive overall business performance. Its goal is to help clients improve productivity and lower overall employment costs by leveraging its HR expertise, infrastructure and group benefits relationships.

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