Hundreds of thousands of businesses coping with the COVID-19 crisis rushed to apply for emergency benefits through the Coronavirus, Aid, Relief, and Economic Security (CARES) Act. he CARES Act provides billions of dollars in economic relief to certain groups hard-hit by the pandemic, with a primary focus on small businesses.
If you’re a small-business owner, here’s what you need to know about CARES Act:
What is the CARES Act?
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed on March 27, 2020, is a $2 trillion stimulus package designed to provide economic relief to individuals and businesses affected by the coronavirus pandemic. According to NPR, $377 billion of the $2 trillion allocated to the CARES Act will go to small businesses with 500 or fewer employees.
Payroll Protection Program
The Payroll Protection Program provides small businesses with funds to pay up to 8 weeks of payroll costs including benefits. Funds can also be used to pay interest on mortgages, rent, and utilities. Loan payments will be deferred for six months, No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Who’s eligible for the loan? Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors — are eligible. Businesses with more than 500 employees are eligible in certain industries.
Economic Injury Disaster Loan Program
The EIDL gives small businesses and private non-profit organizations in the United States and its territories working capital loans of up to $2 million. To be eligible your business needs to have fewer than 500 employees, prove that you’ve suffered substantial economic losses as a result of the coronavirus, and be located in a disaster declared county or a contiguous county. Businesses with more than 500 employees may still qualify as long as they meet the SBA’s size standards. Who’s eligible for the loan? Under the relaxed requirements of the EIDL Program under the CARES Act, entities eligible for EIDL loans include small businesses, as well as non-profits and other small private entities. The business must have been in existence and operation on January 31, 2020 (waiving the usual EIDL Program requirement that the business is in operation for a year prior to the date of the emergency declaration) and must have suffered “substantial economic injury” as a result of the coronavirus outbreak. Are there any tax benefits for my business in the CARES Act? Your business may be eligible to receive a payroll tax credit covering half a worker’s compensation (including health benefits) up to $10,000 (in other words a credit of as much as $5,000 per employee), from March 13, 2020, until the end of the year. For businesses with more than 100 employees, this is available only for wages paid to employees who aren’t working (furloughed or reduced hours). For businesses with 100 or fewer workers, it’s available for all wages paid and doesn’t depend on whether the employee works. Keep in mind that businesses can’t benefit both from this tax credit and a PPP loan.
You can defer the employer portion of the 2020 Social Security tax-paying half by the end of 2021, the other half by the end of 2022. (This no longer can be used after you receive PPP loan forgiveness.)
The act also loosens the restrictions on net operating losses (NOLs) to help businesses qualify for more tax refunds, especially for previous tax years.
Potentially accelerates the refund of certain corporate alternative minimum tax (AMT) credits.
It boosts the business interest deduction for 2019 and 2020 from 30% to 50%.
And the cost of certain facilities improvements can be written off immediately rather than spread out over decades.
Want to Know More About the CARES Act?
We’ve highlighted only a few parts of this comprehensive bill, but you can check out the CARES Act in its entirety here.
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