The CARES Act: Loans and Credits for Small Businesses, Sole Proprietors, and Nonprofits– Part Two

The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) helps small business and individuals affected by the COVID-19 pandemic and provides much needed support to the health care field. In Part Two of our two-part series, we continue with a summary of each small business loan and credit program now available. Please keep in mind there are specific certifications required to ensure only affected businesses receive this assistance.

Employee Retention Credit – Section 2301

The CARES Act includes a one-year credit against the employer’s share of Social Security payroll taxes for any business that is forced to suspend or close its operations due to COVID-19. However, the business must continue to pay its employees during the shut-down.

A business is eligible for the credit in one of two ways:

1. The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19, or
2. The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% what they were for the same quarter in 2019.

The business will then be entitled to a credit for each quarter, until the business has a quarter where it is recovered sufficiently that its receipts exceed 80% of what they were for the same quarter in the previous year. For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll taxes equal to 50% of the “qualified wages” paid to each employee for that quarter, ending December 31, 2020.

“Qualified wages” depend on the size of the business:

1. More than 100 employees during 2019: Qualified wages are limited only to those paid by the employer during the quarter during which the business was shut down.
2. Less than 100 employees for 2019: Qualified wages include those paid to employees during the shut-down, but also wages paid for each quarter the business has suffered a sharp decline in year-over-year receipts. This is described above in eligibility option two.

In either case, qualified wages include any “qualified health plan expenses” allocated to the wages, such as premiums paid to maintain a group health plan. However, the amount of qualified wages for each employee for all quarters may not exceed $10,000. The credit is refundable if it exceeds a business’ liability for payroll taxes.

It is also important to note that any wages taken into account for the new payroll tax credit under the Emergency Family Medical Leave or Sick Leave of the Families First Coronavirus Relief Act may not be taken into account for determining qualified wages for the employee retention credit. Also, if an employer utilizes the new payroll protection loan option under 7(a) of the Small Business Act, the employee retention credit is unavailable.

Should you have questions regarding the credits related to the Emergency Family Medical Leave or Sick Leave portion of the Coronavirus Relief Act, please see An Employer’s Guide to Paid Leave Under the Families First Coronavirus Response Act.

Delay of Payment of Employer Payroll Tax and Self-Employment Tax – Sections 2302 and 2303

Another option for relief under the CARES Act comes in the form of the delay of payroll taxes.

For employer payroll taxes, the employer’s 6.2% share of Social Security taxes that is otherwise due from the date of the CARES Act’s enactment through December 31, 2020 will have a delayed due date. One-half of the delayed social security taxes total is due by December 31, 2021. The other half is due by December 31, 2022.

Self-employed individuals can defer paying 50% of their self-employment tax that would be due from the date of enactment through December 31, 2020 as well. The first half of this deferred amount would be due by December 31, 2021. The remaining half would be due by December 31, 2022. You cannot take advantage of this delay if you received forgiveness of payroll protection loans under 1106.

Speak with your accountant as additional changes have been made to deadlines for filing income returns of all types, interest rules, net operating loss rules, and many others in efforts to help ease the burden on business owners and self-employed individuals.

Should you have any questions regarding what your options are under the available relief and loan packages, please do not hesitate to contact our office and arrange a time to speak with one of our corporate attorneys.

The CARES Act: Loans and Credits for Small Businesses, Sole Proprietors, and Non-Profits – Part One

For additional COVID-19 related information, go to our Coronavirus/COVID-19 Resource Center.