Clarifying the CARES Act – Businesses

This is the second blog in a series of two focused on the CARES Act. The first blog focuses on impacts to individuals while the second focuses on impacts to businesses.

The $2.2 trillion coronavirus economic stimulus bill passed on March 27, 2020 is meant to provide relief for individuals and businesses negatively impacted by the coronavirus pandemic. Numerous grant and lending programs have already been put into place with new guidance released daily. Below we outline some of the programs for businesses and what we know now.

Paycheck Protection Program. The U.S. Small Business Administration (SBA) will oversee a new program to administer potentially forgivable loans up to $10 million for qualifying businesses. The goal of the program is to provide cash-flow assistance to employers who maintain their payroll during the coronavirus pandemic. Companies with less than 500 employees (with certain exceptions) can borrow up to the lesser of $10 million or 2.5 times their monthly payroll plus other related costs. If the funds are used as mandated, the loans will be forgiven and not taxable. Read the SBA’s FAQ for more information and check with your lender first if you’re interested.

SBA Economic Injury Disaster Loan Program. This is a program already in place with the SBA but has been expanded through December 31, 2020 to help businesses during the coronavirus pandemic. Under the expansion, many small businesses will be able to acquire loans of up to $2 million at interest rates not to exceed 3.75% (2.75% for nonprofits). These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The loans offer long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based on a borrower’s ability to repay. Applications should be made directly to the SBA.

Employee retention tax credit. Employers subject to full or partial closure because of COVID-19 are eligible to receive a 50% refundable credit on qualified wages. The refundable credit cap is $10,000 per employee and will be applied against employment taxes for each quarter that has a significant decrease in gross revenue compared to the same quarter in 2019.

Employer payroll taxes. Employers and self-employed individuals will be able to defer payments of the employer share (6.2% of employee wages) of Social Security payroll taxes that would have been owed from March 27, 2020 through December 31, 2020. The deferred amounts would now be due December 31, 2021 (50%) and the remaining would be due December 31, 2022 (50%). Employers who received loans pursuant to the Paycheck Protection Program that were forgiven pursuant to the CARES Act are not eligible for this deferral.

Modifications for net operating losses. The use of net operating losses (NOLs) for corporate and noncorporate businesses is expanded under the new law. NOLs will be able to offset income without the current 80% taxable income limitation when carried forward and will be allowed to be carried back up to five years to offset prior years income. The provisions only apply to NOLs incurred in the 2018, 2019 or 2020 tax years.

Modifications of limitation on business interest. The CARES Act increases the business interest expense limitation from 30% to 50% of adjusted taxable income for tax years beginning in 2019 and 2020.

Modification of limitations on charitable contributions. The new law increases the limit on the deduction for charitable contributions from 10% to 25% of a corporation’s taxable income.

Defined Benefit Plan Relief. Single employer defined benefit pension plans can delay contributions due during 2020 until January 1, 2021.

New information and guidance is released on a daily basis, these are just some of the highlights that apply specifically to businesses under the CARES Act. For details on the CARES Act, please visit: https://www.congress.gov/bill/116th-congress/senate-bill/3548/text.

The material and information contained here is for general informational purposes only. You should not rely upon the material as a basis for making any business, legal or other decisions. Please contact your advisor for detailed information.

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