Phase 3 of the COVID-19 stimulus package (the CARES Act) was just signed by President Trump. This legislation is unprecedented in both size and scope. It is clear that the Federal government is pulling every lever possible to mitigate the economic ramifications of the coronavirus pandemic. It appears Congress is opening every liquidity spigot at their disposal and even creating new ones on the fly. The stimulus bill totals approximately $2.2 trillion and has provisions that will affect everyone in the country, so we have identified some of the key provisions and what you can do to access them, as well as other areas you should be considering during this time While the headline for most individuals is the checks that the Treasury will be sending directly to put cash in American’s hands, our main focus here is the implications for businesses and individuals who may not qualify for those checks. See https://mwbpc.com/the-cares-act-tax-highlights/ for the tax highlights of the CARES Act.
Financing available for businesses – US Small Business Association (SBA) Loans https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
Two different options exist for entities affected by the pandemic in the form of SBA loans. The newest bill expands both the Paycheck Protection Program (PPP) and Economic Impact Disaster Loans (EIDL). An entity is not allowed to receive both a PPP loan and EIDL for COVID-19. Your company or non-profit will want to carefully and quickly assess if a loan is needed and in what form.
Paycheck Protection Program
- Covered loans under the PPP allow the proceeds to be spent on payroll costs, mortgages or rent, utilities and even interest on preexisting debt.
- Loan forgiveness will be available for certain costs, specifically payroll related, for an 8-week period which were in place prior to February 15th, 2020. Any compensation for an employee above $100,000 is not eligible. This loan forgiveness will NOT be included in the borrower’s taxable income.
- Employers with up to 500 employees will qualify, with some small businesses in certain industries, such as hotels and restaurants, being allowed to calculate the 500 employees on a location by location basis.
- Lenders are required to disregard an entity’s current ability to repay, as that is not possible during the crisis, but instead to determine if the entity was operational and had employees on February 15th, 2020.
- The maximum loan per entity is $10 million and is available to businesses, non-profits or veterans’ organizations. The loan amount will be tied to payroll costs incurred by the entity by multiplying the average monthly payroll for the prior 12 months times 2.5.
- Accurate financial information and recordkeeping will be vital to applying for these loans and receiving the subsequent nontaxable debt forgiveness.
Economic Impact Disaster Loans
- While guidance is still pending for the PPP, to qualify for a Disaster Loan, you will need to provide many of the same things you would need to provide in a regular SBA application, including:
- Three prior year’s tax returns, a year-to-date P&L and a year-to-date balance sheet.
- Anyone who owns 20% or more of the business will also have to provide a personal financial statement.
- To illustrate the injury, you will need to show monthly sales amounts over the last three years and the resulting decrease after the disaster declaration. Applicants should be careful when putting the monthly statements together, as they must add up to the total reflected in your tax return.
- All the other “normal” SBA loan requirements will need to be met as well, while the bill provides for procedures to expedite the loan application process.
If your business has questions or would like assistance in compiling the necessary information and completing the application, please contact MWB, as we are prepared to provide any level of help necessary to meet your business’s needs in this area.
Relaxation of Retirement Plan Rules
Individuals affected by the virus with retirement accounts now have various ways to address the economic and health impact felt due to the pandemic.
- Temporary waiver of the 10% early withdrawal penalty for distributions from qualified retirement accounts for COVID-19 related purposes up to $100,000 per individual (i.e. positive diagnosis or necessary quarantine for an individual/spouse/dependent, loss of wages due to pandemic, etc.).
- Any such withdrawal will be taxed over 3 years and can be recontributed within 3 years without regard to the normal annual contribution limits.
- Individuals who meet the same criteria can take loans equal to the lesser of $100,000 or 100% of the account balance (increased from the previous $50,000 limit or 50% of the account balance).
- Payments on all loans due in 2020 from qualified plans can be deferred for one year.
- For 2020, there are NO required minimum distributions (RMD) from qualified plans or IRAs. POSSIBLE OPPORUNITY: For anyone who recently took their RMD from an IRA, this may be an opportunity to use the 60-day rollover provision.
Increased Unemployment Benefits
The CARES Act takes numerous steps to expand unemployment benefits for American workers. As businesses assess their own unique situation, it’s important to take into account both what is best for their business and for their employees. Would making someone eligible for unemployment be better for them than trying to retain them at reduced wages and hours?
- A temporary fund is created that provides unemployment to individuals who are not traditionally eligible for such benefits like self-employed people or workers in the “gig” economy.
- An additional $600 per week above “normal” benefits is available for each recipient for up to 4 months.
- States will be reimbursed by the Federal government for the additional week of benefits if they opt to start benefits immediately instead of waiting the traditional one-week waiting period.
Business Interruption Insurance
Though not part of the stimulus packages, we want to highlight an area we see as critical in the current environment. You should be reviewing your insurance policies in order to determine if you are covered for business losses incurred for the interruptions related to COVID-19. Our understanding is that a lot of insurers attempted to implement language in the past which excluded events such as a pandemic. Knowing whether you are covered is the first step. Potential legislation is being crafted in various jurisdictions which might force insurers to cover claims related to COVID-19. If you have questions in reviewing your policy, filing or quantifying a business interruption claim, MWB has extensive expertise in this area and can help you.
Reach out to the team at MWB for any questions you may have on anything above or ANY impact you are seeing to your business during this time.