A $2 trillion financial assistance package was signed into law this past week in an effort to combat the effects of the COVID-19 pandemic on the U.S. economy. The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was designed to help small to mid-sized businesses, non-profits and churches stay afloat during this unprecedented time.
With 3.3 million Americans already filing for unemployment and the numbers increasing every day, the CARES Act is positioned to help companies keep their employees and address immediate cashflow issues they are facing in the midst of the outbreak.
The CARES Act, which is the third piece of legislative relief, offers several features aimed at helping small businesses, including:
- A Paycheck Protection Program to cover the cost of retaining employees (and 100% forgivable loans for up to 8 weeks' payroll if certain requirements are met)
- An Emergency Economic Injury Grant for quick cash
- A Small Business Debt Relief Program to help small businesses keep up with payments on current loans
- Free counseling programs to help business owners navigate uncertain times
- Expanded flexibility for tax-advantaged benefits tools like HSAs, HRAs, and FSAs
- Other tools to help
Paycheck Protection Program (PPP) and small businesses
A new loan program was created by the CARES Act called the Paycheck Protection Program. For businesses with 500 or fewer employees, it provides a principal loan amount of up to $10 million for up to 10 years with an interest rate of no more than 4% per annum. Payments can be deferred for at least six months and up to one year, with no pre-payment penalty.
Targeted at helping employees keep their jobs, this program incentivizes business owners further by offering 100% loan forgiveness of up to 8 weeks of payroll based on employee retention and salary levels.
The Treasury just issued updated guidance on this measure, which you can find here.
The thought process is if employees can keep their jobs, the economy will bounce back much easier after the crisis. This program helps employers avoid layoffs.
Paycheck Protection Program loans can be used for the following costs:
- Payroll support (including paid sick, medical leave)
- Employee salaries up to 100k
- Mortgage, rent, utility payments
- Insurance premiums and ICHRA reimbursements (we are still researching how they will deal with QSEHRA reimbursements)
- Other debt obligations
Who: Small businesses with less than 500 employees in one location, 501(c)(3) and 501(c)(19) nonprofit organizations with less than 500 employees, sole proprietorships, independent contractors and eligible self employed individuals. Affiliation rules are waived for any business operating as a franchise that is assigned a franchise identifier code or receives funding through a Small Business Investment Company.
When: Small businesses will be able to apply if they were affected by COVID-19 between February 15 and June 30, 2020. The PPP is retroactive to February 15, 2020, to help bring already laid off workers back onto payrolls.
How much: The loan amount varies per business. While $10 million is the limit, you'll find the amount for your business by doing a little algebra. Here's the formula: multiply the average total monthly payments for payroll costs of your business during the 1-year period before the loan by 2.5. Remember, independent contractors or 1099s should not be included in an employer's loan amount as they can apply separately. Household employees are not included either.
It's important to note that if a business receives a Paycheck Protection Program loan for employee salaries, payroll support, mortgage payments and/or other debt obligations, it would not be eligible to receive an Economic Injury Disaster Loan (EIDL) for the same purpose, or "double dip." Paycheck Protection loans, however, may be used to repay an EIDL loan.
Which brings us to our next point.
Emergency Economic Injury Grants and Economic Injury Disaster Loans (EIDL)
For companies with 500 or fewer employees, these financial relief tools represent lower interest loans of up to $2 million, with principal and interest deferment at the Administrator’s discretion, that are available to pay for expenses that could have been met had the disaster not occurred, including payroll and other operating expenses.
Who: Sole proprietorships (with or without employees), independent contractors, cooperatives and employee owned businesses, and tribal businesses.
When: January 31, 2020 – December 31, 2020
How: Apple for an EIDL online here.
Important note: While you can apply for both a PPP, Emergency Economic Injury Grants, and Economic Injury Disaster Loans at the same time, you cannot use your EIDL for the same purpose as your PPP loan. Here's a real life example. If you use funds from your EIDL to cover May payroll, you can't use the PPP to cover the same costs. You could, however, use PPP to cover payroll for a different month or different set of workers. You just can't double dip.
Small Business Debt Relief
This part of the bill provides immediate relief for small businesses with non-disaster loans like 7(a), 504, and micro-loans. It covers principal, interest, and fees for six months and applies to existing loans as well as new borrowers that take out loans within six months of the President signing the bill into law. It does not apply to PPP loans, as covered above.
You can find out how to start the application process by locating a Small Business Development Center near you.
Want your own private business counselor to help you navigate this weird time for free? Look no further than your local Small Business Development Center, Women’s Business Center, SCORE mentorship chapter or Minority Business Development Agency Business Center. You can find help near you by following this link.
Expanded flexibility for HSAs, HRAS, and FSAs
Not only are ICHRA reimbursements eligible for PPPs (as covered above), several provisions were tucked into this bill that make it easier to use tax-friendly tools like HSAs, HRAs, and FSAs to cover everyday costs, like over the counter meds without a prescription and female hygiene products like tampons. Vitamins and supplements will need a doctor's note. This is great since you used to have to have a prescription for those over the counter meds.
Other tools to help
The CARES Act also included the following provisions to help small business owners like you, many of which build upon legislation previously covered in the Families First Coronavirus Response Act.
SBA Express Loan: Increases the max SBA Express loan (a loan that's processed quickly in 36 hours( from $350,000 to $1 million through December 31, 2020.
Employee Retention Tax Credit: Small businesses may be eligible for refundable payroll tax credit for half of wages paid between March 12, 2020 and January 31, 2021. The credit is available to employers that meet certain criteria, like if business was fully or partially suspended because of coronavirus and if gross receipts declined by more than half when compared to the same time last year.
Advanced Tax Credits for Paid Leave: Allows employers to receive an advance tax credit for the Families First requirement of paid sick leave as opposed to having it reimbursed. That's definitely an improvement there.
Delayed Payment of Employer Payroll Taxes: Employers and the self-employed may defer payment of their employer share of the Social Security tax they are responsible for paying.
Our team is here to help
We're a small business just like you and are grappling with many of the same hard topics and uncertainties you are right now. We specialize in tax-friendly benefits solutions for our clients and are happy to walk you through this new legislation and how it affects you, as a small business owner. Our philosophy is to stay as informed as possible during this time as the situation continues to develop.
We've put together a couple of resources to help, including our blog on Small Business Health Insurance and Coronavirus, our take on how the Families First Act helps small businesses, as well as our Coronavirus roadmap for small business owners.
Other resources that many small business owners are finding helpful as they reevaluate their benefit costs are our new Small Business Health Insurance Guide and our CEO's guest post in Employee Benefits Advisor on how our clients are using HRAs to maintain benefits and stay afloat during COVID-19.
Chat with us any time online.
Read the whole CARES Act here.