President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27, 2020. Part of the bipartisan spending bill throws a lifeline to small businesses looking to remain afloat during the economic freefall caused by the COVID-19 pandemic.
Expanded Unemployment Insurance
Federal unemployment insurance adds $600 a week of benefits on top of whatever states are giving furloughed employees. These benefits last up to four months if necessary. Independent contractors, gig economy workers, freelancers, the self-employed, and those with limited work history are able to apply. So, as a small business owner, you can potentially qualify for unemployment insurance benefits if you pay yourself a salary or wages in addition to receiving dividends. Once workers run out of state benefits, the federal government will fund an additional 13 weeks of unemployment benefits through December 31, 2020.
Paycheck Protection Program loans, also called “PPP loans,” are meant to help businesses with fewer than 500 employees retain their workers and cover overhead expenses from February 15 through June 30. Small businesses can take out 2.5x the monthly payroll (up to $10 million) to cover any employees making up to $100,000 per year. Loans may be forgiven if the company retains at least 75 percent of its workforce, and uses the loan for payroll, mortgage interest, rent, utilities, and regional taxes.
The CARES Act gives taxpayers up to $1,200 (plus $500 for each child under 17). Taxpayer refunds may not directly impact small businesses, but feasibly some of the money could end up cycling back for purchases. For instance, a quarter of Americans planned to spend their money on food and groceries, so CPG brands, meal kit providers, and restaurants stand to benefit. Nearly a third of Americans are saving their stimulus money – feasibly to spend it once the economy reopens.
Student Loan Debt Tax Deductions
Employer payments on behalf of employee student loans are excluded from taxable income. Employers can contribute up to $5,250 annually toward student loans, with payments excluded from employer and employee taxable income.
Business Tax Provisions
Employers enjoy a number of new tax provisions allowed under the CARES Act this year, including:
- A 50 percent refundable tax credit on wages paid up to $10,000.
- Social security payroll tax payments delayed until December 31, 2021, and December 31, 2022.
- Carrying back net operating losses earned in 2018, 2019, or 2020 five years to offset taxable income.
- Deducting 50 percent of Earnings Before Interest, Tax, Depreciation, and Amortization (up from 30%).
The U.S. Treasury’s Exchange Stabilization Fund provides $454 billion in emergency lending to businesses, cities, and states. Companies taking out loans must avoid stock buybacks for the entire term of the loan and a year after, and must retain at least 90 percent of its workforce.
Retirement Account Changes
The CARES Act also waives the 10 percent early withdrawal penalty on 401(k) and IRA distributions. Plan participants looking to take out a 401(k) loan can take out up to 100% of what they put in and repay themselves over the next five years. Required Minimum Distributions are waived for the rest of 2020, allowing retirees the ability to hold onto funds rather than sell at a discount.
Ubiquity is a low-cost provider of 401(k) plans. We are committed to helping Americans maximize their retirement accounts in light of the circumstances. Contact us to discuss the CARES Act and more.