On March 27, 2020, President Trump signed into law H.R. 748, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Perhaps one of the most notable provisions has been the Economic Impact Payments (many individuals may have even already received their payment by now). Another popular provision was the Paycheck Protection Program (PPP). The PPP authorized up to $349 billion in forgivable loans to small businesses to pay their employees, among other uses, during the COVID-19 crisis; unfortunately, it was so popular that these funds were completely drained and allocated within the first two weeks of April. There have been a lot of discussions in Congress about adding more funds to the program and at the time of writing this the Senate has passed, and the House is preparing to vote on, a $484 billion relief package that authorizes the PPP to spend an additional $310 billion. Based on the number of applications that have already been submitted, however, experts suspect these new funds will run out just as quickly as the original funding.
While the stimulus payments are underway and additional PPP funding is still in question, there are other lesser known, but highly valuable provisions worth noting.
Businesses who were unable to capitalize on the PPP may still be able to leverage another CARES Act provision that was designed to keep employees on the payroll, despite any COVID-19 related economic hardship the business may be experiencing. The Employee Retention Credit (ERC) established a refundable payroll tax credit of 50% of qualified wages – up to a maximum of $10,000 of compensation per employee – for eligible employers. Employers cannot receive this credit if they receive a loan under the PPP.
Employers considered eligible for the ERC (including tax-exempt organizations) are those that continue business throughout 2020 and that either fully or partially suspend operation during any quarter in 2020 due to orders from a governmental authority, or that experience a significant decline in gross receipts during the calendar quarter.
The definition of qualified wages differs depending in part, on the average number of full-time employees in the company during 2019.
To claim the ERC, employers will report their total qualified wages and the related credits for each calendar quarter on their federal employment tax returns.
Need the money now? In anticipation of receiving the credits, employers can fund qualified wages by reducing the amount of federal employment taxes they deposit for that quarter by half of the amount of the qualified wages paid in that calendar quarter.
Another tool available to employers (including self-employed individuals) is the deferral of the employer’s share of 6.2% Social Security tax. Deferred payroll tax must be paid over two years (half by end of 2021 and remainder by end of 2022).
The CARES Act also changed how Net Operating Losses (NOLs) may be calculated. For losses earned in 2018, 2019, or 2020, companies may now modify tax returns up to five years prior. Additionally, there is a temporary removal of the 80% taxable income limitation for NOL deductions taken in 2018, 2019, and 2020.
There are many more provisions in the CARES Act that may be a good fit for your business, and with so many unknowns, ever-changing guidelines, and of course, a very precarious economy, there will likely be additional opportunities for cash-strapped businesses to leverage in the coming weeks and months. Don’t hesitate to enlist a trusted advisor to help navigate this situation. We’re all in this together.
Michael Kaplan, CPA, is a Partner with Miller Kaplan. He has more than 25 years of experience serving businesses, private enterprises, and high-net-worth individuals in a diverse range of industries such as entertainment, technology, real estate, manufacturing and distribution, and more. To learn more about the CARES Act, visit millerkaplan.com/category/covid-19.
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