Does the CARES Act help me?
April 24, 2020
The CARES Act of March 27, 2020 is a comprehensive legislative plan designed to ameliorate the economic impact from the coronavirus pandemic. The full text of the Act (335 pages) can be found here. The following are some highlights that we thought would be of interest to our clients:
- Small Business Loans and Loan Forgiveness (Paycheck Protection Program)
On April 2, 2020, the Small Business Association temporarily added a new program called the “Paycheck Protection Program” (PPP) to their loan schedule. The purpose of the PPP is to assist small businesses with maintaining their payroll, to hire back employees who may have been laid off, and to cover applicable overhead during the pandemic. $349 billion was earmarked for loans to small businesses toward job retention and other expenses. The last day to receive the loan is June 30, 2020, and the funds are only to be used to cover expenses up to this deadline.According to the Small Business Association (SBA), the following entities affected by the pandemic may apply:
- Any small business concern that meets SBA’s size standards (either the industry-based size standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans’ organization, or Tribal business concern (sec.31(b)(2)(C) of the Small Business Act) with the greater of:
- 500 employees, or
- That meets the SBA industry size standard of more than 500
- Any business with NACIS Code the begins with 72 (Accommodations and Food Services) that was more than one physical location and employs less than 500 per location
- Sole proprietors, independent contractors, and self-employed persons
If the funds are used for payroll costs, interest on mortgages, rent, and utilities (at least 75% must have been used for payroll), the loan will be fully forgiven (for the applicable time period). Loan payments will be deferred for six months. The loan will have a maturity of two years and has an interest rate of 1%.
On April 14, the $349 billion had been fully earmarked for businesses who had applied on a first-come-first-served basis. The second wave of funding has now been released and applications are beginning to be accepted on Monday, April 27. However, the new monies are expected to be fully committed shortly thereafter.
For more information, we urge you to contact your local business bank. In terms of legal issues, Rossi Domingue LLP has already counseled multiple clients in the course of their work in applying for a loan. For many, the application can be made without the need for legal services, but if you find your business needing counsel on an issue related to your loan, an attorney should be consulted.
- 401(k) Loans and Distributions
- Loan limits have been increased to a maximum of $100,000 (or 100% of the vested account balance) for participants impacted by COVID-19, effective through September 23, 2020.
- Pre-existing loan payments can be delayed up to one year with plan approval. Interest continues to accrue on the loans while in deferment.
- For applicants affected by COVID-19, they can take a distribution of up to $100,000 through December 31, 2020.
- Required Minimum Distributions (RMDs) for 2020 are waived.
Note: Loans and distributions will still require Plan Sponsor approval before funds are disbursed and will still be subject to other applicable taxes and regulations. Participants will be asked to self-certify that they are impacted by COVID-19.
- Tax Breaks
- Income tax deduction for up to 100% of adjusted gross income for charitable donations (up from the current 60%). Corporations can now deduct 25% instead of 10% for donations.
- The special deduction for food inventory donation limit rises from 15% to 25% for 2020.
- Net operating losses are modified to offset 100% of taxable income instead of 80%. All taxpayers are allowed to carry back any net operating loss that arises in 2018, 2019, or 2020 for five years. Also, net operating losses are modified to offset 100% of taxable income instead of 80%.
- The $250,000/500,000 limit on excess business losses is suspended for 2018-2020, meaning that you can deduct unlimited business losses for those years and carry back any of those losses for up to five years. But beginning in 2021 you no longer can offset business income from any wage income including wages paid from those businesses.