On March 27, the CARES Act was passed by the federal government to help small businesses owners and their employees get through the tumultuous time brought on by the COVID-19 outbreak.
The legislation is robust. There are several strategies aimed at providing aid for people impacted by forced closures and social distancing. What does that mean for small business owners? What about their employees?
In this article we’ll break down the most important factors small business owners and employees need to know about the CARES Act, including payroll tax delay, expanded unemployment eligibility, and more.
Table of Contents:
- What the CARES Act means for hourly workers
- What the CARES Act means for employers
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What the CARES Act means for hourly workers
First, we’ll take a look at how impacted employees can benefit from the provisions laid out in the package.
Adults who pay their taxes and earn up to $75,000 will receive a one-time stimulus paycheck of $1,200. For married couples, the threshold is $150,000, and the paycheck will be $2,400. Families will receive an extra $500 for each child under the age of 17.
The numbers are based on the 2019 adjusted gross income. If you haven’t filed your 2019 income tax return, it will be based on the 2018 adjusted gross income.
The check will come in the form of direct deposit (as long as the IRS has your bank information). You can expect it around April 16, 2020. If the IRS does not have your bank information, the Treasury Department said they are working on “a web-based portal for individuals to provide their banking information” according to a press release.
If the IRS doesn’t have your direct deposit information, your check will be sent via mail to the address listed on your most recent tax return. However, it could potentially take months.
Expanded unemployment eligibility
One of the more notable provisions in the stimulus bill is Pandemic Unemployment Assistance, which expands unemployment insurance benefits to three groups that don’t normally qualify for financial relief: gig workers, independent contractors, and the self-employed.
Basically, anyone who is unable to work due to coronavirus can receive benefits, including employees who were laid off, became sick, or could not work because they had to take care of a sick family member.
Unemployment benefits increase
If you are receiving unemployment benefits through your state, you can receive an additional $600 a week from the federal government—on top of what you are receiving from the state—from now until July 31, 2020.
For example, if you are receiving the national average of $340 per week from your state, your new weekly pay will be $940.
The act also added another 13 weeks of unemployment insurance time. If you are currently receiving benefits and are nearing your state’s maximum number of weeks, you would get an extension, and if you are just now filing for unemployment, you’ll be able to collect benefits for a longer period of time.
What the CARES Act means for employers
There are several provisions in place that also help small business owners handle a sudden loss in revenue. Let’s break down those benefits.
Paycheck Protection Program
Included in the coronavirus aid package is the $350 billion Paycheck Protection Program, which lends up to $10 million to businesses with fewer than 500 employees.
The forgivable loans program is tied to payroll costs and covers employees earning up to $100,000 per year. You can apply for 2.5 times your cost of payroll. The funds must go towards payroll and other operational expenses between February 15 and June 30, 2020.
The Treasury Department will forgive your loan if:
- You use the loan to cover payroll costs, mortgage interest, rent, and utility costs over the 8-week period.
- Employees maintain compensation levels.
You can apply for the program through any lender approved by the Small Business Administration, and you can find one of those lenders by using the SBA’s Lender Match Tool.
Small businesses and sole proprietorships can apply for these loans through existing SBA lenders starting Friday, April 3rd. See this Information Sheet for Borrowers published by the Department of Treasury for more information.
Economic Injury Disaster Loan Program Expansion
The package also expanded the SBA Economic Injury Disaster Loan Program in an effort to offer more financial support to businesses experiencing a loss in revenue. Companies in all 50 states, Washington, D.C. and U.S. territories can apply for an EIDL and receive an advance.
However, there’s a caveat: the SBA announced on April 6 that instead of automatically receiving the initial amount of $10,000 as an advance, business owners may only receive $1,000 per employee on the advance, up to a maximum of $10,000.
Businesses can receive loans of up to $2 million. The loan comes with a 3.75% interest rate for businesses and 2.75% for nonprofits. If you receive an EIDL before the Paycheck Protection Program becomes available, you can refinance your existing loan through the PPP. This might make the loan eligible for forgiveness.
Once you apply for the loan—which you can do by visiting this site—you can request the advance to cover costs while waiting to receive the rest of the funds. The SBA must distribute the advance within three days of approving the loan application.
It’s also important to know that you can apply for both an EIDL loan and a PPP loan—but you must use the two different buckets of funds for different purposes. For example, if you cover your employees’ wages with EIDL, you cannot use your PPP loan to do the same.
Employee retention credit
All businesses that were impacted by COVID-19 and had a 50% decrease in gross receipts are eligible for a 50% refundable payroll tax credit against the employer portion of Social Security tax on wages paid up to $10,000 during the pandemic period.
Businesses with more than 100 employees can claim the credit for team members who are not currently working, but retained. For businesses with 100 or fewer employees, the credit can be claimed for all employees.
Visit the IRS’ page on the employee retention credit to learn more about how to claim it.
Payroll tax delay
Speaking of the employer portion of Social Security tax (which is normally 6.2%), you may not need to pay the amount that would normally be due from March 27 to December 31, 2020 for now.
If you delay your payment, you can deposit 50% of the deferred taxes on or before December 31, 2021. You must deposit the remaining amount by December 31, 2022.
The provision applies to all employers, regardless of size. However, you are not eligible for the relief if you receive an SBA loan that is forgiven.
As lawmakers expand or further explain parts of the act, we’ll update this article with any more information.