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CARES Act Offers Relief to Small Businesses

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law by President Trump on Friday afternoon. What does it mean for small businesses?

The full text of the Federal stimulus package, or CARES Act, was over 850 pages, and even with this length, there are still ambiguities and unanswered questions that will be clarified over the next week or so. Below we have provided a summary of what we know so far.

When will this begin?

Because of the enormous size of the relief and the complicated nature of the Act, it will take at least a week to two weeks to begin the implementation process. Stay tuned!

Who is a small business?

  • Businesses with 500 or fewer employees. It includes your typical LLC and corporation-type entities but also includes sole proprietorships, self-employed individuals, and independent contractors.
  • The number of employees is based upon common control parameters. If one individual or entity owns more than one establishment, and there is common control among businesses, those employees must be aggregated to determine the total number of employees. Hotels and restaurants are exempt from this common control factor for purposes of this Act.

What does the Act provide?

Qualifying small businesses are entitled to a loan which may be forgiven under the parameters set forth below.

  • The amount of the loan is equal to ten weeks of the average monthly payroll for the one year prior to the loan date, or $10,000,000, whichever is LESS.
  • The payroll amount includes healthcare and retirement benefits, taxes and tips.
  • The payroll amount does NOT include compensation of an individual employee in excess of $100,000 or compensation to employees outside the United States.
  • No personal guarantee is required.
  • Loans will have a 10-year term with a maximum interest rate of 4%.
  • Loan repayment will be deferred for at least six months and up to a year.

Can this loan be forgiven?

Yes, but there are certain requirements and provisions.

  • In order for the loan to be forgiven, it must be used to cover payroll, rent, utilities, and interest on mortgages, and you must keep your staff on payroll through June 30, 2020.
  • The amount forgiven will be based upon a ratio of employees presently on payroll as compared to the previous year.
  • The forgiveness will NOT be included as income for federal tax purposes.

Other Key Provisions

  • Employer-Side Payroll Taxes may be delayed on an interest- free basis. The 6.2% payroll expense may be delayed for qualifying employers for the remainder of 2020 and paid back on the following schedule: 50% paid by December 31, 2021 and 50% paid by December 31, 2022.
  • There is an Employee Retention Credit available for employers who do not take a business interruption loan of up to 50% of qualified wages up to $10,000 per employee.
  • Individuals will have the benefit of withdrawing up to $100,000 from their retirement plan without penalty, and income tax will be spread over three years. There will also be relaxed rules for loans from these plans.
  • Individuals with income less than $99,000 ($198,000 for joint taxpayers) will receive a cash rebate from the Government of up to $1,200 per individual and $2,400 per couple, with a per child credit of $500 dollars.
  • Required Minimum Distributions are waived for 2020.

There are numerous other tax relief portions of the Act which we will leave to the accounting professionals to explain.

There is new information coming out on a daily basis. This summary contains the basic fundamentals of the CARES Act. It will continue to evolve over the coming days and weeks. Please contact Louis George at 860.651.1333, ext. 121 with any questions you may have.