During this critical time, you have options for financial stress relief as a business.
As a business, you have two options: take a loan or take advantage of the credits available to you. You cannot chose both, you can only chose one.
Let's break down both options in further detail.
Option 1. Taking Out a Loan
Economic Injury Disaster Loans (EIDL)
EIDLs have been made available through the Small Business Association (SBA) at low-interest.
Each disaster loan provides up to $2 million to pay fixed debts, payroll, accounts payable, and other bills. The interest rate is fixed at 3.75% for small businesses, and 2.75% for non-profit organizations. These loans can be repaid over a period of up to 30 years.
The SBA is providing advances of up to $10,000 on EIDLs for businesses currently experiencing a temporary loss of revenue.
Funds can be made available within 3 days of applying and being approved. The loan advanced does not have to be repaid.
More information and applications here: click here
New Paycheck Protection Program (PPP)
This PPP loan is made available under the CARES Act (Coronavirus Ad, Relief, and Economic Security Act).
You can take advantage of this loan if your business was in operation as of February 15th, 2020 and you either had 1. employees you paid salaries to or 2. 1099-MISC independent contractors.
If you are a small business, you can borrow 250% of your average monthly payroll expenses during the 1-year period before the loan is taken, up to $10 million.
For example, if your monthly payroll average is $10,000, then you can borrow up to $25,000.
Payroll costs include:
-Employee salaries, wages, commissions, or "similar compensation", up to $100,000 per worker per year
-Cash or cash equivalent tips
-Payment for vacations and parental, family, medical, or sick leave
-Allowance for dismissal or separation
-Payment for group health benefits (including health insurance)
-Payment of any retirement benefit
-State or local tax assessed on employee compensation
Payroll costs do NOT include:
-Annual compensation over $100,000 to any individual employee
-Compensation for employees who live outside of the U.S.
-Sick leave or family leave wages for which a credit has already been provided under the Families First Act
How much of the loan is forgiven:
What will be forgiven: principal amounts used for payroll, mortgage interest, rent, and utility payments during an 8-week period that starts when the loan originates, between February 15th, 2020 and June, 30th 2020. You will not be liable for the interest accrued over those 8 weeks if the full principal is forgiven.
The whole point of this loan is to help workers stay employed at their current level of pay. Because of this, the loan forgiveness amount decreases if you lay off workers or reduce workers' wages.
-If you keep all of your workers at their current rates of pay, you are eligible for 100% of loan forgiveness
-If you reduce your work force, your loan forgiveness will be reduced by the percentage of decrease of workers (As an example: if you had 10 workers, and went down to 8 this year, your forgiveness will be reduced by 20%)
-If you reduce the pay of your workers by more than 25%, your loan forgiveness decreases by the amount in excess of 25% (For example, if you reduce your worker's wage by 30%, your forgiveness of your PPP loan is reduced by 5%)
The non-forgiven amounts are subject to the terms negotiated by you and the lender, but the maximum terms of the loan are capped at 10 years and 4% interest.
How to apply for a PPP:
PPP loans go through approved 3rd party lenders, not the SBA.
Talk to your bank or the SBA to get in touch with these 3rd party lenders. Due to the demands on the SBA, it is recommended that you start with your bank.
There is no fee to apply. You will need the correct documentation and proof that the loan is necessary to support your business. The funds are to be used to retain workers, maintain payroll, make mortgage payments, loan payments, and utility payments. Also, to get the loan you must not already have another loan in the process.
If you are going to apply for this loan, do it now.
Yes, $349 billion was delegated for PPP relief, but that may go quickly because of the COVID-19 effects. Act now if you are eligible because there isn't a guarantee that more funding will be forthcoming.
Option 2. Credits
Employee Retention Credit
The CARES Act gives you a refundable tax credit against the employer portion of employment taxes equal to 50% of wages paid to your employees after March 12th, 2020 and before January 1st, 2021.
You qualify if:
-A Government order fully or partially suspended your operations during a calendar quarter due to COVID-19 or
-Your gross receipts for a calendar quarter are less than 50% of gross receipts from the same quarter of the previous year, in which case your credit ends in the quarter when gross receipts exceed 80% of gross receipts from the same quarter the previous year
If you have more than 100 full-time employees:
You can take a credit for wages paid to your employees when they are not providing services due to COVID-19 related circumstances.
If you have 100 or less full-time employees:
All of your employee wages qualify for the credit, whether you are open for business or are closed due to a shut-down order.
The maximum creditable wage amount is $10,000 per employee for all calendar quarters and includes the value of the health benefits you pay on his/her behalf.
You cannot take this credit is you receive a Small Business Interruption Loan from the SBA.
FFCRA Tax Credits
If the Families First Coronavirus Response Act (FFCRA) requires you to provide paid sick leave or paid family leave to your employees, you can receive a refundable payroll tax credit against your employer portion of your employment tax liability to offset the wage expense.
You can reduce your federal tax deposits by the anticipated credit amount. if it exceeds your payroll tax deposit, the difference is refundable to you.
You will not have to pay employer Social Security taxes upon the paid leave, and you can also get an additional tax credit to offset your share of the Medicare payroll tax.
In general, you must provide leave if you have fewer than 500 employees or are a tax-exempt organization. The Department of Labor has the authority to exempt small businesses with fewer than 50 employees based on criteria that the circumstances involve jeopardy to the viability of an employer's business as a going concern.
Paid Sick Leave Payroll Tax Credit
The Emergency Paid Sick Leave Act requires you to provide an employee with paid sick time due to any of the following Reasons:
1. The employee is subject to a federal, state, or local quarantine related to COVID-19
2. A health care provider advised the employee to self-quarantine due to concerns related to COVID-19
3. The employee is experiencing symptoms of COVID-19 and is seeking diagnosis
4. The employee is caring for an individual under clause 1 or 2
5. The employee is caring for the employee's child due to school closure
6. The employee is experiencing similar conditions specified by the Department of Health and Human Services
If your employee qualifies for Reason 1, 2, or 3:
-Your employee receives up to two weeks of paid sick leave at 100% of their pay and
-You will receive a 100% payroll tax credit for qualified sick leave wages, but it cannot exceed $511 for which you pay the individual sick time.
If your employee qualifies for Reason 4, 5, or 6:
-Your employee receives up to two weeks of paid sick leave at 2/3s o the employees pay and
-You receive a 100% payroll tax credit for qualified sick leave wages, but the credit may not exceed $200 for any day for which you pay the individual sick time.
Paid Family Leave Payroll Tax Credit
The Emergency Family and Medical Leave Act requires you to provide public health emergency leave to employees under the Family and Medical Leave Act of 1993.
This usually applies when your employee cannot work at the place of business and also cannot work from home due to caring for a child under the age of 18 because of place of care and school closures (due to COVID-19 reasons).
You can provide unpaid leave for the first 10 days of public health emergency leave required, but after those first 10 days, you must provide paid leave.
For paid Family Leave time:
-Your employee receives no more than 10 weeks of paid family leave at no less than 2/3s the employee's pay for normally worked hours and
-You receive 100% payroll tax credit for qualified family leave wages, but the credit must not exceed $200 for any day of which you pay the individual family leave time, for an aggregate maximum of $10,000
For both the paid sick leave credit and the paid family leave credit, you'll include the credit amount as income and the qualifying expenses as a deduction.