Part II of the federal legislative response to the coronavirus pandemic became a reality Friday afternoon, and NJBIA’s Ray Cantor spent the weekend dissecting the bill’s key provisions for business owners. Here are some highlights that provide at least partial answers to some of the most frequent questions NJBIA has been fielding over the last two weeks.
NJBIA is still trying to ascertain how the money will be distributed and when businesses and individuals will be able to apply for the new programs.
Small Business Paycheck Protection Loans
The Coronavirus Aid, Relief and Economic Security (CARES) Act changes the Small Business Administration’s (SBA) Chapter 7 small business loan program and boosts spending for it by $349 billion. To be eligible, businesses must have fewer than 500 employees nationwide, with special eligibility for restaurants and those in the hospitality industry that have multiple locations each with under 500 employees.
The maximum loan amount was increased to $10 million and can now be used to meet payroll (including both paid leave and employee salaries), pay insurance premiums and cover mortgage, rent and/or utility payments and debt incurred between Feb 15 and June 30. Wages paid to those making more than $100,000 are not covered.
Interest is 4% over 10 years. Personal guarantees and other requirements are waived as are SBA regulations on entity affiliations for business concerns, nonprofits, and veterans’ organizations.
The loans may ultimately be forgiven if the employer maintains employment for eight weeks beginning with the date of the loan. Forgiveness will be tax free and could be reduced proportionately by how much a business reduces its workforce or if it reduces salaries by 25% or more.
Unemployment Benefits Expanded
Independent contractors, the self-employed, and those with limited work histories can temporarily collect unemployment benefits. Typically, such entities are ineligible for unemployment.
For all employees, eligibility has been expanded to include reasons related to COVID-19. The program will provide an additional $600 per week in benefits for up to four months, and an additional 13 weeks of benefits could be available if state benefits run out before the end of the year.
Those telecommuting with pay or receiving paid sick leave or other paid benefit are not eligible to collect.
Tax Credits for Closed Businesses
Any business that continues to pay its employees after it was forced to suspend operations due to COVID-19 could be eligible for a refundable tax credit against its share (6.2%) of Social Security payroll tax equal to 50% of the first $10,000 in wages per employee. This includes the value of health plan benefits.
The provision applies to businesses that were ordered to fully or partially close in any quarter in 2020 due to COVID-19. If the business was open, it could still be eligible if it experiences a 50% decrease in gross receipts in any quarter.
The CARES Act temporarily repeals the taxable income limitation on net operating losses. Losses from 2018, 2019, and 2020 will be permitted to be carried back for five years. Losses carried to 2019 and 2020 can offset 100% of taxable income (rather than 80%).
Owners of 401(k) plans can take distributions in 2020 without the 10% prior distribution penalty for distributions up to $100,000 due to diagnosis of coronavirus of self or spouse, or if they suffered financial loss from quarantine, furlough, layoff, reduced hours, or being unable to work due to closures.
Cash contributions for individuals to charities may be deducted “above the line” even if a person does not itemize and takes the standard deduction. Different limits apply to corporate contributions.