Businesses should assess their unique financial circumstances and cash flow needs to determine both their eligibility for the various programs available as well as the best option or suite of options to apply.

COVID-19 lifeline programs

Breaking it all down

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Jeremy Smith, CPA, Partner

COVID-19 has really thrown us all for a loop. If you’re finding it difficult to keep up with all the various tax changes, incentives, credits, deductions and other updates over the past few months, you’re not alone. We feel the same way. To help us all keep it straight, here’s a summary of the various pandemic related incentives that were included with the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act that could impact your business entities.

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Families First Coronavirus Response Act (FFCRA)

FFCRA provides 100% of the funds needed by employers with fewer than 500 employees to pay federally mandated emergency leave to employees caring for themselves or others for COVID-19 reasons. This assistance is delivered through the existing system used by employers to deposit federal payroll taxes.

The FFCRA requires businesses and tax-exempt organizations with fewer than 500 employees to provide emergency paid sick or expanded family and medical leave through December 31, 2020. These businesses can then claim a refundable tax credit to recover 100% of these payments.

Employers can deduct the cost of providing such leave from their total federal tax deposit amount from all employees, not just from those who take the leave. The cost of providing such leave can be deducted from federal income taxes withheld, and employer/employee’s share of Social Security & Medicare taxes.

For those that are self-employed, there are equivalent tax credits available. These taxpayers may deduct from their estimated tax payments or claim a refund on their 2020 federal income tax return.

FFCRA Emergency Sick Leave Payroll Tax Credit

  • Employer must have fewer than 500 employees per entity
  • Pays employees who request up to 80 hours of leave for COVID-19 related self-care or care for others
  • Credit is limited to lesser of 100% of two-thirds of employee’s regular pay or daily rate of $511/$200 depending on reason for leave

FFCRA Emergency Medical Leave Payroll Tax Credit

  • Employer must have fewer than 500 employees, including affiliates, as defined by FMLA
  • Pays employees who request up to 12 weeks of leave to care for a child under age 18 whose school or care provider is unavailable due to COVID-19
  • Credit limited to lesser of two-thirds of employees regular pay or daily rate of $200 for 10 weeks

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Coronavirus Aid, Relief, and Economic Security (CARES) Act

The CARES Act is the largest economic stimulus bill in US history and offers a list of benefits for businesses. In addition to setting aside monies for loans to eligible small businesses, it provides partial assistance to employers who continue to pay employees instead of sending them to the unemployment systems. It also permits employers to defer payment of their remaining 2020 employer payroll tax liabilities into 2021 and 2022.

Paycheck Protection Program (PPP)

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CARES Payroll Tax Deferral

  • Employer of any size can defer its payment of employer social security beginning March 27, 2020 and ending December 31, 2020
  • 50% must be paid by December 31, 2021, with remainder due by December 31, 2022

CARES Employee Retention Payroll Tax Credit

  • Eligible employer is one that has had:
    • Operations fully or partially suspended due to COVID-19 related government order that limits commerce, travel, or group meetings, or
    • Gross receipts for the 2020 quarter decline more than 50% when compared to the same 2019 quarter. The employer will remain eligible for the credit until such calendar quarter as their gross receipts equal 80% of the gross receipts for the same calendar quarter in 2019.
  • For employers with greater than 100 employees, tax credit is 50% of wages up to $10,000 paid to employees who are NOT performing service (max credit of $5,000 per employee)
  • For employers with 100 or fewer employees, tax credit is 50% of wages up to $10,000 paid to ANY and ALL employees (max credit is $5,000 per employee)
  • Employer must consider controlled group/affiliated service group rules
  • Employer is not eligible for the tax credit if it receives an SBA loan under the PPP Program
  • The credit is available for wages paid from March 13 to December 31, 2020
  • Any federally mandated sick or child care leave paid under FFCRA is excluded from “qualified wages” for this credit

Other provisions provided to employers

  • Economic Injury Disaster Loan (EIDL) Program
  • Net Operating Loss (NOL) changes – ability to carry back NOLs five years and forward indefinitely
  • Qualified Improvement Property (QIP) – changes were made to properly define expenditures made to existed real property and whether or not they qualify for 15 years tax life for depreciation purposes, which entitles them to 100% bonus depreciation
  • Expanded business interest (Section 163j) limitation adjustments
  • Main Street Lending Program

Applying the correct mix of relief

While these programs can provide much-needed relief to businesses, they are very complex and require thorough consideration of the possible accounting and tax implications of implementation. Businesses should assess their unique financial circumstances and cash flow needs to determine both their eligibility for the various programs available as well as the best option or suite of options to apply.

Businesses should also be fully aware of the requirements of these programs as well as their mechanics. What might trigger noncompliance with a program and what repercussions might there be for such noncompliance? In order to understand fully the strings attached to such funding programs, businesses across industries should closely read the fine print and consult with their advisors.

For more information and resources on COVID-19, see our coronavirus page. Feel free to contact your Henry+Horne tax adviser with any questions.

Jeremy Smith, CPA, Partner, specializes in consulting, tax planning and compliance work for both individuals and closely held businesses. He can be reached at (480) 839-4900 or JeremyS@hhcpa.com.