Coronavirus Stimulus Package: How does the stimulus bill support small businesses?
The bill contains several provisions to help small businesses:
- A $350 billion forgivable loan program designed to ensure that small businesses do not lay off employees
- A 50% refundable payroll tax credit on worker wages will further incentivize businesses, including ones with fewer than 500 employees, to retain workers
- Relaxed net operating loss-reduction rules that will allow businesses to offset more
- A delay in employer-side payroll taxes for Social Security until 2021 and 2022
- Sole proprietors and other self-employed workers could be eligible for the expanded unemployment-insurance benefits the bill provides
- A portion of the $425 billion in funds appropriated for the Federal Reserve’s credit facilities will target small businesses
- The act broadens small business eligibility for reorganization after bankruptcy.
The Small Business Administration, under the stimulus package, will oversee the Paycheck Protection Program, which will distribute $350 billion to small businesses that can be partially forgiven if the companies meet certain requirements. The loans will be available to companies with 500 or fewer employees. Loans will be administered by banks and other lenders. At this time the banks have not been activated yet to start giving the loans. We hope to know more by week’s end.
Businesses can receive loans up to $10 million, based on how much the company paid its employees between Jan. 1 and Feb. 29. The loans will carry an interest rate up to 4%. The bill provides for an expedited origination process.
If the business uses the loan funds for the approved purposes such as payroll and other expenses, like insurance premiums, mortgages, rent or utilities, and maintains the average size of its full-time workforce based on when it received the loan, the principal of the loan will be forgiven, meaning the company will only need to pay back the interest accrued.
The government will pay off the loan balance so long as the companies either do not lay off workers or rehire ones they’ve already let go.
The banks lending the money would be reimbursed by the Treasury Department, which is receiving $377 billion to fund the program. The program does come with some restrictions. Businesses that have recently laid off workers would be required to repay a larger portion of their loans, and loans covering salaries of more than $100,000 a year wouldn’t qualify for forgiveness. Businesses would not have to repay loans covering up to eight weeks’ worth of payroll costs.
Employee retention credit for employers subject to closure due to COVID-19
The provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis. The credit is available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order; or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee. For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shut-down order. The credit is provided for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is provided for wages paid or incurred from March 13, 2020 through Dec. 31, 2020.
Delay of payment of employer payroll taxes
The provision allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying to the federal government with respect to their employees. Employers generally are responsible for paying a 6.2-percent Social Security tax on employee wages. The provision requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by Dec. 31, 2021 and the other half by Dec. 31, 2022. The Social Security Trust Funds will be held harmless under this provision.
Modification of limitation on losses for taxpayers other than corporations
The provision modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can utilize excess business losses and access critical cash flow to maintain operations and payroll for their employees.
Modification of credit for prior year minimum tax liability of corporations
The corporate alternative minimum tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The provision accelerates the ability of companies to recover those AMT credits, permitting companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
Modification of limitation on business interest
The provision temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30-percent limitation to 50 percent of taxable income (with adjustments) for 2019 and 2020. As businesses look to weather the storm of the current crisis, this provision will allow them to increase liquidity with a reduced cost of capital, so that they are able to continue operations and keep employees on payroll.
Technical amendment regarding qualified improvement property
The provision enables businesses, especially in the hospitality industry, to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building. The provision, which corrects an error in the Tax Cuts and Jobs Act, not only increases companies’ access to cash flow by allowing them to amend a prior year return, but also incentivizes them to continue to invest in improvements as the country recovers from the COVID-19 emergency.