COVID-19 Tax Related Relief Options

The following is for general informational purposes only. It is intended to provide a broad overview of potential relief options available to small businesses and self-employed taxpayers who have been adversely impacted by the COVID-19 Pandemic.

LOAN PROVISIONS

1) PAYCHECK PROTECTION PROGRAM (PPP)

Legislative Source: CARES Act (Section 1102)

Summary: Small Business Association loan up to $10,000,000 (capped at a 2.5 X average monthly ‘payroll costs’) available to eligible small businesses (including self-employed taxpayers) with less than 500 employees. The loan is available until 6/30/20 or until funding runs out. There are no collateral or personal guarantee requirements. The term is 24 months with an interest rate of 1% (on the unforgivable amount) and payment deferment up to six months. The proceeds are intended to be used for the following business expenses: payroll costs, group health benefits, interest on debt payments, rent, and utilities. The loan can be forgivable (under certain circumstances).

Where to Start: Must be initiated through participating lenders and banks.

More Info:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program-ppp

https://home.treasury.gov/system/files/136/PPP%20–%20Overview.pdf

2) ECONOMIC INJURY DISASTER LOAN (EIDL)

Legislative Source: Predates the CARES and FFCRA  Acts

Summary: Small Business Association loan up to $2,000,000 available to eligible small businesses (including self-employed taxpayers) with less than 500 employees. The term is up to 10 years and interest rates of 3.75% (2.75% for non-profits). The proceeds can be used for fixed debt (rent, mortgage, etc), payroll, accounts payable, and certain other expenses impacted by COVID 19. The loan is not forgivable.

Where to Start: https://covid19relief.sba.gov/#/

More Info:

https://disasterloan.sba.gov/ela/Information/EIDLLoans

3) ECONOMIC INJURY DISASTER LOAN (EIDL) EMERGENCY ADVANCE

Legislative Source: CARES Act (Section 1110)

Summary: Small Business Association loan up to $10,000 available to eligible small businesses (including self-employed taxpayers) with less than 500 employees. This loan is available separately and in excess of the SBA EIDL Loan. The loan is available until 12/31/20. There are collateral (for loans above $25,000) and personal guarantee requirements (for loans above $200) as well as payment deferral for one year. The proceeds are intended to be used for employee payroll, employee benefits including sick leave, materials, mortgage payments, repaying obligations due to interruption of services. The loan is forgivable.

 Where to Start: https://covid19relief.sba.gov/#/

 More Info:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/economic-injury-disaster-loan-emergency-advance

4) EXPRESS BRIDGE LOAN (EBL)

Legislative Source: Predates the CARES and FFCRA  Acts

Summary: Small Business Association loan up to $25,000. The loan is currently available until 9/30/2020. There are no collateral requirements and payments can be deferred for 12 months. The term is up to 7 years.  The proceeds must be used exclusively to support the survival and/or reopening of the business. The loan is not forgivable.

Where to Start: Must be initiated through a (qualified) SBA Express Lender

More Info:

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/sba-express-bridge-loans

TAX PROVISIONS

1)  EMPLOYEE RETENTION CREDIT

Legislative Source: CARES Act (Section 2301)

Summary: Eligible employers can take a payroll tax credit equal to 50% of an employee’s eligible wages including health benefits capped at $10,000 per employee. Eligible employers are those who were carrying on a trade or business in 2020 AND whose operations have been partially or fully shut down due to government order OR whose gross receipts are down 50% in a 2020 quarter vs that same quarter in 2019 AND have not received the SBA ‘PPP’ Loan. Eligible wages are those paid or incurred between 3/12/20 and 12/31/20. Self-employed taxpayer’s services and earnings are not considered eligible wages for this credit, only their portion of payroll, if applicable.

 Where to Start (options):

  1. Reduce payroll deposits by credit amounts (and reconcile on Form 941)
  2. Advance Payment of the credit: https://www.irs.gov/forms-pubs/about-form-7200

 More Info:

https://www.irs.gov/newsroom/irs-employee-retention-credit-available-for-many-businesses-financially-impacted-by-covid-19

https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act

2) PAYROLL TAX PAYMENT DELAY

Legislative Source: CARES Act (Section 2302)

Summary: Allows for deferred payment of Payroll Taxes (for employers) and Self Employment Tax (for self-employed taxpayers). This deferment is not applicable to any taxpayers who are forgiven a SBA PPP loan.

A. Employer Version

For the total amount of employer payroll taxes incurred from enactment until 12/31/20, 50% is due 12/31/21 and the remaining 50% deferred until 12/31/22.

Where to Start (options):

  1. Reduce payroll deposits by credit amounts (and reconcile on Form 941)

 B. Self Employed Version

For the total amount of self-employment tax incurred from enactment until 12/31/20, 50% is due 12/31/20, 25% is due 12/31/21, and the remaining 25% is deferred until 12/31/22.

Where to Start: The self employment tax deferment would be applied to the self-employed taxpayer’s 2020, 2021, and 2022 federal income tax return.

More Info:

https://www.irs.gov/newsroom/deferral-of-employment-tax-deposits-and-payments-through-december-31-2020 fbclid=IwAR3XXlTmeWxcmTTfxjqJzQxAqvwx_pp4Ju52jbwHIbaNkhOTJwNToZQy9KM

https://www.irs.gov/pub/irs-drop/n-20-22.pdf

3) PAID SICK LEAVE CREDIT (in response to the Emergency Paid Sick Leave Act)

Legislative Source: FFCRA Act (Section 5101,7001, and 7002)

Summary: Taxpayers who own a small business with less than 500 employees (small businesses with less than 50 employees may claim an exemption from this requirement, and therefore would not be eligible for the Paid Sick Leave Credit, if it can be shown to jeopardize the viability of the business) are required to provide up to 10 days (80 hours) of paid sick leave if the employee is unable to work (or telework) due to the being affected by COVID-19.

There are six ways (i.e. clauses) in which an employee can be affected by COVID 19:

  1. The employee is subject to a Federal, State, or local quarantine or isolation order related to COVID–19.
  2. The employee has been advised by a health care provider to self-quarantine due to concerns related to COVID–19.
  3. The employee is experiencing symptoms of COVID–19 and seeking a medical diagnosis.
  4. The employee is caring for an individual who is subject to an order as described in subparagraph (1) or has been advised as described in paragraph (2).
  5. The employee is caring for a son or daughter of such employee if the school or place of care of the son or daughter has been closed, or the child care provider of such son or daughter is unavailable, due to COVID–19 precautions.
  6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services in consultation with the Secretary of the Treasury and the Secretary of Labor.

Small Business employers and self-employed taxpayers are allowed a credit for paid family leave expenses. For small business employers [self-employed taxpayers], the credit is applicable to paid sick leave expenses incurred [the amount of days the self-employed taxpayer was unable to work] between April 1, 2020 – Dec 31, 2020.

A. Employer Version:

The small business taxpayer (employer) may take a payroll tax credit to compensate for paid sick leave expenses.

Scenario 1: For employees who qualify under clauses 1, 2, or 3: sick leave pay is equal to 100% of their salary for up to 10 days (80 hours). Under this scenario, the small business taxpayer (employer) can receive a payroll tax credit in the full amount of paid sick leave expense. The credit is capped at $511 per day for that employee and up to a total of 10 credit days (80 hours) are allowable in a given tax year per employee.

Scenario 2: For employees who qualify under clauses 4, 5, or 6: sick leave pay is equal to 67% of their salary for up to 10 days (80 hours). Under this scenario, the small business taxpayer (employer) can receive a payroll tax credit in the full amount of paid sick leave expense. The credit is capped at $200 per day for that employee and up to 10 credit days (80 hours) are allowable in a given tax year per employee.

Where to Start (options):

  1. Reduce payroll deposits by credit amounts (and reconcile on Form 941)
  2. Advance Payment of the credit: https://www.irs.gov/forms-pubs/about-form-7200

B. Self Employed Version

The self-employed taxpayer is eligible for a refundable credit (on their 2020 income tax return) to compensate for up to 10 days (80 hours) in which they are unable to work.

Scenario 1: For self-employed taxpayers who qualify under clauses 1, 2, or 3: the refundable credit = [(number of days the taxpayer was unable to work) X the smaller of: [$511 or (100% X Average Daily Self Employment Income*)]

Scenario 2: For self-employed taxpayers who qualify under clauses 1, 2, or 3: the refundable credit = (number of days the taxpayer was unable to work) X the smaller of: $200 or (67% X Average Daily Self Employment Income*)

* Average Daily Self Employment Income = Net Earnings from Self Employment / 260

 Where to Start:

The refundable credit is applied on the self-employed taxpayer’s 2020 federal income tax return (and can reduce the self-employed taxpayer’s 2020 federal estimated tax payments).

More Info:

https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs

4)  Paid Family Leave Credit (in response to the Emergency Family and Medical Leave Expansion Act)

Legislative Source: FFCRA Act (Section 3101,7003, and 7004)

Summary: Taxpayers who own a small business with less than 500 employees (small businesses with less than 50 employees may claim an exemption from this requirement, and therefore would not be eligible for the Paid Family Leave Credit, if it can be shown to jeopardize the viability of the business) are required to provide up to 10 weeks (400 hours) maximum of paid leave to employees who cannot work (or telework) because of a need to care for a child whose school or place of care is closed or whose child care provider is unavailable due to COVID-19.  The paid leave starts after the initial 10 days of leave (i.e. on the 11th day) and is equal to two-thirds of the employee’s regular pay (including health benefits), up to $200 per day ($10,000 total) per employee.

Small Business employers and self-employed taxpayers are allowed a credit for paid family leave expenses. For small business employers [self-employed taxpayers], the credit is applicable to paid sick leave expenses incurred [the amount of days the self-employed taxpayer was unable to work] between April 1, 2020 – Dec 31, 2020.

A. Employer Version

The small business taxpayer (employer) may take a credit worth up to 100% of the unpaid leave expense up to $200 per day ($10,000 total), per employee.

 Where to Start (options):

  1. Reduce payroll deposits by credit amounts (and reconcile on Form 941)
  2. Advance Payment of the credit: https://www.irs.gov/forms-pubs/about-form-7200

B. Self Employed Version

If a self-employed taxpayer would have been eligible to receive paid family leave if they were an employee of a business subject to the Emergency Family and Medical Leave Expansion Act requirement, then they are entitled to a refundable credit (on their 2020 income tax return) to compensate for the days in which they are unable to work.

The refundable credit = the number of days the self-employed taxpayer was unable to work (up to 50 days) X the smaller of: [$200 or (67% X average daily self employment income*)].

* Average daily self employment income = net earnings from self employment / 260.

Where to Start:

The refundable credit is applied on the self-employed taxpayer’s 2020 federal income tax return (and can reduce the self-employed taxpayer’s 2020 federal estimated tax payments).

More Info:

https://www.irs.gov/newsroom/covid-19-related-tax-credits-for-required-paid-leave-provided-by-small-and-midsize-businesses-faqs

 

MISCELLANEOUS

1) Economic Impact Payments (aka, Recovery Rebates)

Legislative Source: CARES Act (Section 2201)

Summary: $1,200 per qualifying individual + $500 per qualifying child. Qualifying threshold = Adjusted Gross Income (AGI) beneath $75k (Single, MFS), $150k (MFJ). Thresholds will be based first on 2019 federal income tax returns, if available, then 2018 federal income tax returns. If neither the 2018 or 2019 federal income tax return is available or qualifies, the taxpayer may be eligible for a tax credit on their 2020 federal income tax return (based on the same threshold requirements).

Where to Start: Payments will be sent to taxpayers based on the address information from their 2019 (or 2018 if 2019 is not filed yet) federal income tax return (taxpayers can choose to have payments direct deposited via portal on irs.gov, portal is forthcoming).

More Info:

https://www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know