On Friday, March 27, President Trump signed into legislation the Coronavirus Aid, Relief and Economic Security (CARES) Act. The $2.2 trillion legislation represents the largest stimulus package in U.S. history—dwarfing the $800 billion package signed during the 2008 financial crisis—and provides a variety of economic relief measures to mitigate the impact of the coronavirus pandemic on American society. The Act provides for six options for businesses in search of relief, which are listed below for consideration:
• Paycheck Protection Program (SBA 7a Loan)
• Employer Payroll Tax Payment Deferral
• Employee Payroll Tax Credit
• Economic Injury Disaster Loan (SBA 7b Loan)
• Economic Stabilization Fund Backstop for Federal Reserve Lending
• Favorable Tax Code Changes
Small businesses and independent contractors should be aware of some special considerations including:
Paycheck Protection Program
• Small businesses with 500 or fewer employees can apply for a potentially forgivable loan for up to eight weeks of payroll costs, interest on mortgages, rent and utilities. Loan payments are deferred for six months.
• Sole proprietors, independent contractors and other self-employed individuals may be eligible to receive a loan based on their net earnings from self-employment or similar compensation.
• To be eligible for loan forgiveness, 75% of the loan proceeds must be used for payroll costs while 25% may be used for non-payroll costs such as rent, utilities, etc. over an eight-week period following the date of the loan.
• If proceeds from the loan are unsubstantiated and ultimately not qualified for loan forgiveness, the loan will be for a period of two years at 1% interest.
• If certain conditions are met, you may still be eligible for a loan if you have previously furloughed or laid off employees due to the adverse impact of COVID-19.
Independent contractors and self-employed individuals may apply for a loan under the Paycheck Protection Program through June 30 or until the funds ($349 billion) have been expended.
Economic Injury Disaster Loan
• The maximum amount for which small businesses are eligible under the Economic Injury Disaster Loan is $10,000.
• The loan does not have to be repaid.
Favorable Tax Code Changes
• Retroactive to 2018, qualified improvement property (QIP) is depreciable as 15-year property, is eligible for bonus treatment through 2022,and is subject to a 20-year life under the Alternative Depreciation System.
• Net operating losses from previous years can be used to offset taxable income in 2019 and 2020, and those from tax years 2018, 2019 and 2020 can be carried back up to five years.
• The business interest expense limitation has been temporarily set at 50%.
CBM will continue to provide breaking news to clients and friends of the firm as the very fluid COVID-19 situation develops, and we encourage you to keep an eye out for future alerts dedicated to the impact of the CARES Act.
We hope you all stay safe during this unprecedented time.
Councilor, Buchanan & Mitchell (CBM) is a professional services firm delivering tax, accounting and business advisory expertise throughout the Mid-Atlantic region from offices in Bethesda, MD and Washington, DC.