5 Ways the CARES Act May Impact Your Small Business
If you're a small business owner, you certainly feel the economic impact of this virus, for better or for worse, but the CARES Act has come out with several provisions that apply to small business owners in order to support them through this rollercoaster of 2020. The situation and application of this bill is continually evolving, but here is an overview of some of those provisions.
#1 Paycheck Protection Program
The first one is the one that most have heard of: the Paycheck Protection Program (“PPP”). This is designed to help employers cover some payroll costs, along with other expenses, and encourage employee retention through the next few months. This loan is potentially forgivable, depending on when and how it's used, but you do have to apply at a local participating bank. Unfortunately, the Small Business Administration recently announced that the funding limit for the PPP loans has been reached and they will no longer be accepting new applications. Whether or not the budget will be expanded is yet to be determined.
#2 Economic Injury Disaster Loan
Similar, but separate, is the Economic Injury Disaster Loan. This is also a loan through the SBA, but the qualifications and the amount that you can receive is different than the Paycheck Protection Program. You may be able to receive a $10,000 advance very quickly, that will likely apply as an advance against the Paycheck Protection Program loan. Similar to the PPP, the Small Business Administration recently announced that the funding limit for the Economic Injury Disaster Loans has been reached and they will no longer be accepting new applications. Whether or not the budget will be expanded is yet to be determined.
#3 Employee Retention Credit
The Employee Retention Credit is a credit against employer payroll taxes equal to 50% of employee wages up to $10,000 per employee. However, you can only use this if you have not utilized the Paycheck Protection Program; you can't use both. This credit will be in place through 2020. If you're interested in learning more, the IRS FAQ can answer many of your questions on this.
#4 Payroll Tax Deferral
On a similar note, some companies may have the option to defer the remainder of 2020 employer payroll taxes through the end of 2021 and the end of 2022. Take what you would pay for the remainder of 2020 in payroll taxes, of that amount, 50% can be deferred through 2021 and the remaining 50% can be deferred through 2022. Again, this cannot be used if you've already utilized the Paycheck Protection Program. These payroll tax provisions are great for businesses that for some reason, didn't apply or didn't qualify for the Paycheck Protection Program.
#5 net operating losses (“NOL”)
Finally, there were some modifications to the NOL rules (Net Operating Losses. Typically, when a company incurs operating losses, they can only offset up to 80% of their taxable income. The remainder gets carried forward to offset taxable income in future year. With this provision, the amount of taxable income that you can offset with operating losses has been increased from 80% to 100%. Furthermore, any operating losses that you incur in 2018, 2019, and 2020 can actually be carried back five years. Which mean that some companies may be able to amend prior year tax returns, claim a refund, and be provided with more liquidity during these tough times.
Hopefully these provisions help your business get through these tough times. If you're interested in learning more, you can visit some of the links in the paragraphs above. In the meantime, stay healthy, stay hopeful, hang in there!