One of the core pieces of the CARES Act is the Keeping American Workers Paid and Employed Act.
This section of the bill is focused on supporting businesses in their efforts to keep their employees on payroll via SBA backed loans with very favorable terms for small businesses that qualify.
Loan proceeds can be used for operational costs like payroll, rent, benefits, insurance premiums, utilities, etc.
Loans will be made with very favorable terms, including repayment terms, forgiveable loan amounts, little or no personal guarentees, as well as waiving of SBA Loan Fees.
The funds from an SBA Loan provided in the CARES Act may be used for certain approved costs.
Spending the loan proceeds outside of approved expenses could result in loss of key benefits of this loan, including the “no-recourse on non-payment” clause.
Businesses may, in addition to uses already allowed under the SBA’s Business Loan Program, use the loans for:
All loans issued under the CARES Act will be automatically qualified for complete payment deferral for six month to one year.
Lenders are required to provide payment deferral for this period.
All loans issued under the CARES Act will also qualify for a loan forgiveness provision.
Indebtedness is forgiven (and excluded from gross income) in an amount (not to exceed the principal amount of the loan) equal to the following costs incurred and payments made during the covered period:
Forgiveness amounts will be reduced for any employee cuts or payroll reductions.
The purpose of this bill is to keep employers paying their employees – so if you take this loan, DO THAT.
To note, there is relief from these forgiveness reduction penalties for employers who rehire employees or make up for wage reductions by June 30, 2020.
Employees who make over $100,000 per year do not qualify for this calculation.
Assuming the following facts:
You could qualify for up to $225,000 in SBA Loans.
Assuming you took the maximum loan, your loan forgiveness amount would be $22,000, bringing your balance to $205,000 after the first 2 months.
Payments of $2,251.38 per month would not begin for 6 to 12 months.
Since there is no prepayment penalty, you could repay the entire amount after your loan forgiveness and payment deferral period and survive for 6 to 12 months without any cost to you except time.
Previously, gig workers were not covered by unemployment insurance. The CARES Act expands unemployment insurance protections to gig workers.
This means some of your staff or coaches who might not have qualified for unemployment insurance before, now do.
The expansion also increases the amount of money receieved per week while on unemployment insurance, increases the amount of time someone can be on unemployment insurance benefits, and removes the one week waiting period to receive benefits.
The CARES Act provides for recovery rebates of up to $1,200 ($2,400 for joint filers) for US taxpayers. The mechanism for paying the rebates is an advance refundable tax credit. The rebates are subject to certain special rules:
The rebates are available even if the taxpayer has no income, and no action is generally required to claim the rebates. The IRS will use the taxpayer’s 2019 tax return, if filed, or in the alternative, their 2018 return. The CARES Act exempts the rebates from offset to pay debts owed to other federal agencies, state income tax obligations, and unemployment compensation debts (but not for past-due support). It also requires Treasury and the Internal Revenue Service (IRS) to coordinate with the Social Security Administration and other agencies to conduct a public awareness campaign regarding the availability of the rebates.
The CARES Act provides eligible employers – including tax-exempt organizations but not governmental entities – a refundable credit against payroll tax (Social Security and Railroad Retirement) liability equal to 50% of the first $10,000 in wages per employee (including value of health plan benefits).
Certain tests are required to be passed to qualify for this credit. Please download our CARES Act Playbook to see if you qualify.
There are several business tax adjustments that can materially impact your business tax liability (for the better).
Please talk to an accountant to see how these might apply for you.
Download our CARES Act Playbook for more information on these adjustments.
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