Coronavirus Resources Center

CARES ACT and COVID-19 TAX IMPACT

Due to the pandemic crisis, U.S. business and economic activity has essentially come to a grinding halt. In response, the Government has stepped in to provide cash flow and economic incentives to stabilize businesses by providing bank financing and deferral of tax payments.

1. Payment Protection Program (PPP) Loans

The program provides cash-flow assistance through 100-percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain their payroll, the government will forgive the loans. PPP provides forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, with no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply for the loans if COVID-19 harmed them between February 15, 2020, and June 30, 2020. This program is retroactive to February 15, 2020, in order to help bring workers back onto payrolls who may have already been laid off. 

Small businesses (including non-profits) and sole proprietorships were able to start applying for PPP loans on Friday, April 3, 2020. Independent contractors and self-employed individuals can apply starting on Friday, April 10, 2020. Loans are available through June 30, 2020. 

2. Small Business Debt Relief Program

This program will provide immediate relief to small businesses via non-disaster SBA loans, in particular 7(a), 504, and microloans. Under this program, the SBA will cover all loan payments, including principal, interest, and fees, for six months. This relief will also be available to new borrowers who take out loans within six months of the CARES Act’s enactment.

3. SBA Loans -The CARES Act provides for new SBA loans of up to $10 million available to small businesses. The interest rate on these loans is 3.75% payable up to 30 years. In addition, all or a portion of the PPP loan may be eligible for forgiveness. However, the requirements for SBA loans are somewhat restrictive and complex.     
4. Economic Injury Disaster Loans & Emergency Economic Injury Grants (EIDL)

These grants provide an emergency advance of up to $10,000 to small businesses and private non-profits that have been harmed by COVID-19. Advances can come within days of applying for an SBA Economic Injury Disaster Loan (EIDL). To access the advance, you must first apply for an EIDL and then request the advance. The advance does not need to be repaid under any circumstance, and it may be used to keep employees on payroll, to pay for sick leave, to meet increased production costs due to supply chain disruptions, or to pay business obligations, including debts, rent and mortgage payments. To be eligible, you Have to be located in a disaster declared county or contiguous county

Up to $2 million can be available for payroll, fixed debts, accounts payable, other expenses as a result of the disaster impact. 

5. Shared Work Program

The program allows employers to reduce the hours of full-time employees by as much as 60 percent, while their workers collect partial unemployment benefits to replace a portion of their lost wages. All employers with two or more full-time or permanent part-time employees can participate in the program. To qualify, the business’ reduction of work cannot be less than 10 percent or more than 60 percent. NOTE: The Shared Work Program is not designed for seasonal separations.

6. Refundable Tax Credits for Paid Leave Obligations

As required under the Families First Coronavirus Response Act, the Internal Revenue Service issued guidance about the government’s plan to provide tax credits for eligible small and midsize businesses that offer paid leave for workers.

7. Employee Retention Credit

The credit is not available to employers receiving assistance through the Paycheck Protection Program (PPP).

This provision of the CARES Act provides a refundable payroll tax credit for 50 percent of wages paid by eligible employers to certain employees during the COVID-19 crisis. The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis.

This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000.

8. Delay of Payment of Employer Payroll Taxes

Deferral is not provided to employers receiving assistance through the Paycheck Protection Program. 

This provision would allow taxpayers to defer paying the employer portion of certain payroll taxes through the end of 2020, with all 2020 deferred amounts due in two equal installments, one at the end of 2021, the other at the end of 2022. Payroll taxes that can be deferred include the employer portion of FICA taxes, the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer FICA rate), and half of SECA tax liability.