The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. The purpose of the legislation is to provide assistance for individuals and businesses affected by the restrictions imposed to respond to the COVID-19 virus.
This guide provides an overview of the provisions of the CARES Act for individuals and small businesses as of this writing. There have been changes to the rules that govern the CARES Act, so make sure you understand the existing rules at the time you research any of the CARES Act benefits.
Individuals and families benefit from the Economic Impact Payments. Eligibility depends on your citizenship status, work status, dependent status, and your adjusted gross income. As of this writing, the IRS defines eligibility and tax implications for Economic Impact Payments as shown below.
You are eligible for $1,200 for an individual or head of household, $2,400 for a married couple filing jointly, and there is an additional $500 per child if you:
· are a U.S. citizen or resident alien
· have a work eligible Social Security number
· aren’t claimed as a dependent by another taxpayer
· have an adjusted gross income of $75,000 or less for individuals
· have an adjusted gross income of $112,500 for heads of households
· have an adjusted gross income of $150,000 for married couples filing jointly
You are eligible for a reduced payment if you meet the first three requirements listed above, but your adjusted gross income exceeds the amounts listed above. In that case, your payment will be reduced by $5 for each $100 above the income limits shown above.
You aren’t eligible if:
· You file singly and have an income above $99,000
· You file as a head of household and your income is above $136,500
· You file as a married couple filing jointly, you have no children, and your income is above $198,000
Payments under the CARES Act aren’t part of your gross income for 2020 taxes, so don’t show the payments on your federal tax return. The payment won’t reduce your refund or increase the amount you owe for 2020.
If you haven’t received an Economic Impact Payment, or you aren’t required to file a tax return for 2018 or 2019, you can check the status on the IRS website.
The PPP provides funds, in the form of a forgivable loan, to help small businesses that were affected by the restrictions imposed to respond to the COVID-19 virus. Its purpose is to keep a small business’s employees on the payroll during the COVID-19 crisis.
You can use PPP funds to pay up to 8 weeks of payroll costs, including benefits. You can also use these funds to pay interest on mortgages, rent, and utilities.
All small businesses that employ 500 people or fewer are eligible. This includes nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. If your business is eligible, it’s a good idea to apply as soon as possible due to the popularity of the program.
The Small Business Administration (SBA), with the support of the Department of the Treasury, is managing the PPP program. You can apply at any SBA 7(a) lender or any federally insured bank or credit union. All loans will have the same terms, regardless of where you apply. You can download a copy of the borrower application and check for lenders in your area at the SBA website.
Forgiveness. If you use the funds for approved expenses, your loan will be fully forgiven. Given the anticipated demand for PPP loans, at least 75% of the funds should be used for payroll. Forgiveness of the loan is dependent on the employer either retaining or quickly rehiring employees and keeping salary levels the same.
If you decrease the number of full-time employees or if wages decrease, only part of the loan will be forgiven.
Fees. No lender will charge fees to applicants.
Maturity. The loan will mature in 2 years at an interest rate of 1%.
The CARES Act established the EIDL Loan Advance to help small businesses with an advance of up to $10,000 that doesn’t need to be repaid. The SBA is also managing this fund.
As of April 15, 2020, the SBA was forced to stop accepting applications due to lack of funds. If you already applied for the EIDL, the SBA will process those applications on a first-come, first-served basis.
As of this writing, Congress supplied additional funds to the program to provide relief specifically to U.S. agricultural businesses.
The Employee Retention Credit is available to encourage businesses to retain their employees during the pandemic.
All employers of all sizes including tax-exempt organizations are eligible for the credit that runs by calendar quarters. The credit is for wages paid after March 12, 2020 and until December 31, 2020. You’re eligible if:
· Government COVID-19 Orders closed your business fully or partially during a calendar quarter
· Your gross receipts were below 50% of the same quarter in 2019.
The amount of credit you could receive is 50% of wages up to $10,000. A portion of the cost of employer-provided health care can also be included.
The amount of wages you can include in the calculation vary based on the number of employees you had in 2019.
· If you employed fewer than 100 employees on average in 2019, you can include wages paid to all of your employees, whether they worked or not.
· If you employed more than 100 employees on average in 2019, then you can only include wages for those employees who didn’t work during a calendar quarter.
The details of qualifying and claiming this tax credit can be complex, and you should confer with your tax advisor before taking any action. You can also get more detailed information on the IRS website.
This program helps to improve cash flow for employers and self-employed individuals. You can defer paying the employer share of the Social Security tax. You can defer paying the tax over the next two years. You must pay half by December 31, 2021 and the second half by December 31, 2022. Learn more about this program on the IRS website and check with your tax advisor.
The CARES Act also offers tax credits to help businesses cover the cost of providing Coronavirus-related leave. For example:
· If you have employees who can’t work or telework because of coronavirus quarantine
· If you have employees that are sick with the coronavirus
· If you have employees who are caring for someone with coronavirus
· If you have employees who are unable to work because they must care for children while schools and day care businesses are closed
You are an eligible employer if you are required to provide emergency paid sick and family leave according to the Families First Coronavirus Response Act signed into law on March 18, 2020. If you are eligible, you can get tax credits:
· in the amount of the sick leave and family leave payments
· for related health plan expenses
· for the employer’s share of the Medicare tax on the leave
The credit runs from April 1, 2020 through December 31, 2020. You can obtain more information by reviewing the FAQs published by the IRS. And, again, check with your tax advisor for specific details.
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