The Small Business Administration (SBA) is tasked with distributing $350 billion in loans to help businesses. Small businesses may qualify for the Paycheck Protection Program and Economic Injury Disaster Loans, while other businesses may qualify for breaks, tax deferments, and credits through the CARES Act. Here are details on four measures to help businesses through the coronavirus shutdown.
Paycheck Protection Loans
Businesses with under 500 employees are considered small businesses and can qualify for loans. PPP loans provide up to $10 million, and companies can apply for them through an SBA-certified lender. A certain portion of the loan can be forgiven if it’s used for payroll costs, mortgage interest, rent, or utilities during the eight weeks after getting the loan. For the portion of the loan not forgiven, the interest rate is 1% for a two-year term, with a 6-month deferment.
Economic Injury Disaster Loans (EIDL)
EIDL loans are for working capital needs like fixed debt and payroll. The interest rate is 3.75% for businesses and 2.75% for nonprofits, with a 30-year term possible. There is an automatic one-year deferment on repayment. If a business applies for an EIDL loan, it can request a $10,000 grant for working capital that doesn’t have to be repaid.
Payroll Tax Deferments and Credits
Thanks to the CARES Act, Employers can defer payment of their 6.2% share of Social Security tax on wages paid from March 27th through December 31st, 2020.3 Half of the amount is due December 31st, 2021, and the other half is due December 31st, 2022.4 There is also a payroll tax credit for employers who have had to close up shop or reduce hours because of government mandate, or whose gross receipts decline more than 50% in a quarter. Up to $5,000 per employee offsets the employer’s 6.2% share of Social Security taxes, with the excess refundable. The credit applies to qualified wages paid from March 13th through December 31st. Keep in mind that these options aren’t available to businesses that receive a Small Business Administration paycheck protection loan.
Temporary Changes to the Tax Code
Several changes to the 2017 tax reform bill have been temporarily undone. The CARES Act temporarily eases the 2017 tax reform’s law regarding Net Operating Loss (NOL) carryovers, so that NOLs in 2018, 2019, and 2020 can now be carried back up to five years.5 The CARES Act also increases the limit on the deduction large firms can claim for interest on business debt from 30% to 50% of ATI (adjusted taxable income). And, it suspends the cap on the deduction for business losses on individual tax returns for 2018 through 2020.
For more info on how the CARES Act could help individual taxpayers, see a guide to the CARES Act for Americans Age 50 and over. If you need to revise your retirement plan or create one during this volatile time, schedule a complimentary review with us. We can learn about your specific financial planning needs and develop a plan that takes market volatility into account.