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Posted by Coastline Education on Monday, March 30, 2020
Information on the CARES Act & Updates on the Families First Act
Last Friday provided important developments on many fronts. Primarily we now have information on the CARES Act (Third – and most recent – COVID-19 Bill passed by Congress) and secondarily, we have regulatory updates on the Families First Coronavirus Response Act (passed two weeks ago – providing Emergency Paid Sick & Family Medical Leave).
CARES Act – The Paycheck Protection Program
In my opinion, this is THE MOST IMPACTFUL ITEM so far in any COVID-19 legislation to date. The Paycheck Protection Program allows small businesses, non-profits and self-employed individuals with fewer than 500 employees to apply for a Small Business Administration (SBA) loan through their local lender to cover payroll costs and other business expenses. This loan may cost you nothing…
- The amount of the loan is based entirely on your “Payroll Costs”, which include a sum of payments for the following:
- Salary, Wage, Commission or similar
- Cash Tip or the equivalent
- Paid Vacation, Family/Medical, Sick time
- Allowance for dismissal
- The employer portion of paid healthcare benefits
- The employer portion of paid retirement plan benefits
- State/Local Tax (ie: Unemployment) assessed on compensation
- EXCLUDING prorated amounts for individuals whose sum of the above exceeds $100,000
- The amount of the loan is limited to 2.5x your Average Monthly Payroll Costs:
- For the 1 year period prior to the loan
- If you are a SEASONAL business; either the 12 week period beginning on 2/15/19 or, if elected, 3/1/2019 – 6/30/2019
- ABSOLUTE LIMIT – $10 Million
- Allowable use of the loan during the covered loan period includes:
- “Payroll Costs” (as previously described)
- Mortgage Interest (no prepayment or principal)
- Rent (including rent under a lease agreement)
- Interest on any other debt obligation incurred prior to the loan
- Owner or Officer will be required to certify the following:
- The uncertainty of current economic conditions make this loan necessary
- Funds will be used to retain workers, maintain payroll, make mortgage payments, lease payments or utility payments
- All or part of the loan can be FORGIVEN!
- The expected forgiveness amount is contingent upon retaining your average number of Full-Time plus Full-Time Equivalent employees (including hiring back previously laid-off employees)
- The expected forgiveness amount is the amount expended on the sum of any:
- “Payroll Costs” (as previously described)
- Mortgage interest payments
- Rent payments
- Utility payments
- Loan Forgiveness is TAX-FREE!
- Forgiveness of this loan will NOT be taxable, as any amount should be excluded from your gross income
- Loan Fee: WAIVED
- Personal Guarantee Requirement: NONE
- Collateral Requirement: NONE
- As mentioned above, you apply for the Payroll Protection Loan directly through your local lending institution. Contact your local banker for more details
CARES Act – Expanded Unemployment
This act also contains a provision to address what some considered to be depressed payments from some states for unemployment. The coronavirus has a tremendous impact on every single worker in this country and it is all happening at the same time for everyone. Due to the lack of other employment opportunities, the federal government wants to expand unemployment benefits to provide further aid, above and beyond what the individual states would provide on their own. This includes self-employed individuals and independent contractors who would not otherwise be eligible for weekly unemployment benefits.
- The CARES Act will add up to $600 to weekly unemployment benefits for the next 4 months for laid-off workers who file for unemployment
- More laid-off workers will receive benefits closer to their true income because of this increase
- Waives the 10% penalty on early distributions from retirement accounts and applies to the regular income tax on these distributions over three years – instead of one
- The law also extends access to weekly benefits from 26 weeks to 39 weeks
Families First Coronavirus Response Act
To recap previous updates, this Act provides two weeks of Emergency Paid Sick Leave (EPSL) at full pay (up to $511 per day) for an employee who has been infected by the coronavirus, is quarantined due to the coronavirus, or who may be seeking a diagnosis of coronavirus. The Act also provides two weeks of EPSL at 2/3’s the rate of pay (up to $200 per day) for an employee caring for someone due to the aforementioned or who is caring for a child whose school or daycare has been shuttered due to the coronavirus outbreak. Furthermore, the Act continues to provide Emergency Family Medical Leave (EFML) at 2/3’s the rate of pay (up to $200 per day) for weeks 3-12 for an employee unable to work because they are caring for a son or daughter whose school or daycare has been shuttered due to the coronavirus. BOTH of these paid leaves are 100% reimbursable through tax credits to the employer.
- It is appropriate to pay this EPSL or EFML at 2/3’s rate of pay even if that subsequent rate is below the applicable minimum wage
- EPSL and EFML go into effect on April 1st, which means that is the first date during a pay period you can utilize this
- Employees who may have been furloughed prior to 4/1/2020 are not entitled to the new EPSL or EFML (unless they have returned to work after the previously mentioned date)
- Government Issued Shelter-In-Place, Stay-In-Place, Stay-At-Home or Quarantine
- Shelter-In-Place, Stay-In-Place or Stay-At-Home orders which cause your business to close are NOT a qualifying event for EPSL
- Quarantine orders, where the Federal or State government has ordered an actual quarantine, can be a qualifying event for EPSL
- Employers will need documentation citing a government official or health care provider that shows the quarantine, diagnosis or hospitalization for either the employee or the individual the employee is caring for to utilize EPSL. Furthermore, the employer will need a school or daycare closure notice to utilize the EFML
- Further guidance – and may I mention POSITIVE guidance – has been provided on the obtainment of tax credits to cover EPSL and EFML. The IRS will now let an employer short-pay their entire 941 payment (not JUST the employer portion of social security – as was previously understood) up to 100% for the amount of EPSL and EFML in their payroll. The IRS will also create a claim form for any remaining credit over and above the 941 payment so the employer will NOT have to wait until the end of the quarter to receive any refundable portion of the credit
There will be more updates to come as further regulation is put in place over the coming days.