The CARES Act legislation includes important programs and provisions to help keep your employees on payroll during the COVID-19 crisis.
While widely available, the benefits of these programs are complicated and you CAN NOT choose all of them, so there are choices to make in deciding how to best utilize them. Here's a link to a detailed guide to help with that process.
Below is a summary of the three programs aimed at providing assistance with payroll expenses during this crisis. We strongly recommend speaking with your accountant/financial advisors about these decisions For our clients, we’re ready to help with providing any information and/or records you’ll need to evaluate and/or apply for these programs.
Paycheck Protection Loan Program (PPP Loans):
This loan program provides eligible businesses (under 500 employees) with cash to meet payroll (including benefits) and other fixed costs (such as rent, interest on mortgages, and utility payments) for up to eight weeks. This is different than the existing Economic Injury Disaster Loan (EIDL) also available through the SBA:
Loan Amount: the maximum loan amount would be 250% of the employer’s average monthly payroll costs, capped at $10 million. The law expands eligibility for SBA loans and aims to speed-up the approval process Your bank will help in this process.
Loan Forgiveness: Different factors determine the level of forgiveness. If the borrowing business demonstrates that the loan was used to maintain previous payroll or pay those other fixed costs, the loans (and any interest due) would be eligible for very generous loan forgiveness (and the forgiven amounts would not be taxable).
Loans will be available starting Friday, April 3.
Helpful summaries of the Forgiveness Application Instructions:
Update: December 23rd, 2020: PPP and other SMB relevant updates from recently passed Omnibus Spending Bill - key summary via Community Banker’s Association here.
Update: November 18th, 2020: IRS releases new guidances clarifying the tax treatment of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. You can read more here. Click here to view the revenue ruling and click here to view the revenue procedure.
Update: June 18th, 2020: Most Recent Checklist and Instructions for PPP Loan Forgiveness Application Form 3508 via the SBA
Update: May 27th - Updated FAQ/Guidelines from US Treasury Department for PPP Loans, including guidelines for the definition of payroll costs, PEO clients, Affiliation Rules and more.
Update: May 3rd - Here’s a very helpful link from the US Treasury Department which includes straight forward guidelines for borrowers and lenders.
Helpful Resources
Recordings of CognosHR’s PPP Loan Forgiveness Webinar Series - Updated June 16th!
Click here for a detailed guide and checklist on qualifying for the new loan program from the U.S. Chamber of Commerce.
Here’s a link to the PPP Loan application recently issued from the Treasury.
FAQ for PEO clients via NAPEO
50% Employee Retention Tax Credit:
This program allows employers (regardless of size) uniquely affected by COVID-19 to claim a refundable tax credit against the employer portion of payroll tax equal to 50% of certain wages paid to an employee between March 13, 2020 through the end of the year.
Only $10,000 of wages could be taken into account for any employee.
This 50% credit would be available to businesses
(i) that have had their operations fully or partially suspended by government order due to COVID-19
(ii) that experienced a 50% decline in gross receipts during a 2020 calendar quarter when compared with the same quarter in 2019.
Social Security Tax Deferral:
Another provision that is available to employers of all sizes is the ability to defer the payment of the employer portion of Social Security taxes (6.2% of wages) for the remainder of 2020. Fifty percent of those deferred taxes would have to be repaid by the end of 2021, with the remainder due by the end of 2022.
Restrictions, Next Steps and What Programs You CAN Choose (aka the small print):
Each of these programs provide generous tax subsidies to assist employers. But you CAN NOT choose all of then, you’ll need to make choices.
If you obtain one of the new SBA loans, you are not eligible for the 50% employee retention tax credit.
If you have a new SBA loan forgiven, you cannot take advantage of the Social Security tax deferral.
If you claim the 50% employee retention credit, you will no longer be eligible for an SBA loan.
If you take advantage of the Social Security tax deferral, you will no longer be eligible to have your SBA loan forgiven.
If you’ve already applied for or received SBA EIDL loans, you can refinance the EIDL into the PPP for loan forgiveness purposes. While you can apply for both, you CAN NOT not take out an EIDL and a PPP loan at the same time and for the same purposes.
To be clear, as of today (March 31) no one is applying for PPP loans because the program does not yet exist, operationally. There are no forms on the SBA site but you can start preparing everything you need to apply starting Friday, April 3rd. It’s important to carefully evaluate these programs since the benefits could vary greatly depending on which path you choose. More details and further guidance will be released from the SBA and IRS.
Reminder: The FFCRA’s COVID-19 Paid Leave Requirements Take Effect April 1st: For more information on the new rules requiring employers to provide paid sick leave and FMLA leave for COVID19-related reasons, please see our communication here.
We will keep you informed of additional information as it becomes available. Know that we are here as a resource. Please reach out if assistance is needed.