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UPDATE: March 31st: The CARES Act - Everything you want to know about the new law but didn't know how to ask (Part 2, Business Edition)

Our last update was about the CARES ACT for Individuals.  

This one is about Business.

We will cover the 

  • EIDL
  • PPP
  • ERC
To find out what these are, read on:


As I mentioned in our last update, there is a LOT to cover in this new law. 

In this email we will cover

“Title I – Keeping American Workers Paid and Employed Act”


As well as the 

“Subtitle C: Business Provisions” 

of 

 
“Title II – Assistance for American Workers, Families, and Businesses,”

of which I gave you the Individual provisions in our last update.

NOTE: if you are not a business owner, but you are (were) an employee, or an independent contractor primarily paid by one employer, you will want to know this as well. This applies to you, too,as it relates to the business owner. 

 

So, here goes:

 
The Small Business Administration (SBA) just got sent a LOT of money to help Small Business.

In the CARES Act, there are two ways to get money from the Small Business Administration (SBA).  

  • The 2 separate loans  cover 
  • 2 separate sets of circumstances and expenses, and are 
  • applied for in 2 different ways.

These two loan programs, yet BOTH have ways of getting FREE MONEY!

They are: 



Q. Wait a minute.  Am I a Small Business?  Can I get some of this money?



A. Are you, or do you own, at least in part:

  • A business entity with 500 or fewer employees?
  • A sole proprietorship, with or without employees?
  • An independent contractor?
  • A cooperative or employee owned business?
  • A Tribal small business?; 
  • A Private non-profit of any size?
 


If the answer is “YES” to ANY of the above,


AND

  •  your business was operational on February 15th, 2020
  •  is suffering due to the Coronavirus outbreak,
  • had either 
    • employees for whom it paid salaries and payroll taxes  
    • OR paid an independent contractor

Then “YES!!” The SBA has money for you!!!



Q. How do I apply for this money?


A. For the EIDL, It’s amazingly easy!!!


 

All you have to do is go to the SBA Disaster Loan Assistance page, answer the questions, and follow the prompts. This is where you find the "Economic Injury Disaster Loan (EIDL)" Application, one of 2 major loans available to you, if you apply.

Q. Is it really as easy as you say it is?


A. It wasn’t at first. On Monday morning, they had separate forms depending on whether or not you had employees, or were a sole proprietor. But by Monday afternoon, they streamlined it!

Q. So what do I do?


A. Now you just go this one page, fill in information based on the prompts they give you, and they put it on the right form for you!!!



Q. That’s it? I just follow the prompts, and then wait for them to send me the dough?


A. Okay. It’s not THAT simple. 


They will ask for contact information from you because they WILL need more information before they send you the money.


If you need any help with the process, email us (find your preparer on this website) and we can help you with specific questions.


 
Q. Is this really FREE MONEY, or will I have to pay it back?
 


A. They will ask you if you want $10,000 emergency grant as part of the application. I recommend it. They will ask you, as part of the EIDL, if you want to apply for up to a $10,000 grant (they will give you $1,000 per employee, up to 10)  The SBA is supposed to send you that $10,000 within 3 days, even if the loan is denied (but they won't. It will take weeks. They were, unfortunately overly optimistic).



The EIDL, according to the SBA, is 


"In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. The SBA’s Economic Injury Disaster Loan program provides small businesses with working capital loans of up to $2 million that can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing."


Basically, the loan is designed to replace lost revenue to keep you afloat.

Think:
  •  paid sick leave,
  • payroll,
  • buying materials,
  • making rent and
  • repaying obligations.

The funds are not supposed to be used for
  • physical repairs,
  • expansions,
  • bonuses or
  • refinancing long-term debt.



The caveat is that they want you to use it to:


Provide sick leave to employees who can’t work due to the virus;
Maintain payroll to retain employees;
Meet increased costs of materials due to interrupted supply chains;
Make rent or mortgage payments;
Repay obligations that cannot be met because you are not taking in money.


AND, you will NEVER have to pay back that (up to) $10,000.


 
Q. So, aside from that $10,000, it’s a loan.


A. Correct. But you don’t have to pay it all back. 


Then there is the other loan, The Paycheck Protection Plan (PPP) 


For this one, you have to apply to a Bank, a Credit Union, or other FDIC insured lender.

The SBA says:
 
 
You can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. All loans will have the same terms regardless of lender or borrower. A list of participating lenders as well as additional information and full terms can be found at www.sba.gov


Q. So, with the EIDL, you apply directly through the SBA, but with the PPP you have to go to a BANK?

A. Yes - well, a bank, a credit union, or any approved lender. But NOT the SBA.

 
Q. How does that one work?


A. The Paycheck Protection Program (PPP) 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.  


They will give you 2.5 times the average monthly payroll. So if your monthly payroll is $10,000, they will give you a $25,000 loan, at 1%, for 2 years. 

But you don't have to pay it all back!


Q. What?? Wait a minute! Is it a loan or isn't it? Do I have to pay this back or not? I'm so confused?


A. That depends on what you spend it on.


 Q. What do you mean? Can’t I use this money to do anything I want?


A. Within the "CARES Act," is also the 


"Keeping American Workers Paid and Employed Act." 


This part is of it is called the “Paycheck Protection Program (PPP).” 


This money is to cover:

  • Payroll costs
  • Continuation of Health Care Benefits
  • Compensation of employees or independent contractors making less than $100K
  • Mortgage obligations
  • Rent
  • Utilities, and
  • Interest on debt you had before the virus closed things down.
 

Q. If I use this money for what’s on that list, do I have to pay THAT back?


A. NOT the 1st 8 weeks of it!!!


The borrower, under the Paycheck Protection Plan shall be eligible for LOAN FORGIVENESS equal to the amount you spend during an 8-week period after you get the loan, on any of the above list.

 
Q. So if I spend the money to pay for what’s on that list, then I DON’T have to pay back what I spent on this list during the first 8 weeks after I get the money?


A. Correct!!!


Q. What if I spent more than I got?


A. Nice try. They will not forgive more debt than they lent you.


 Q. How much can I borrow?


A. As I wrote above, You can borrow a maximum of 2.5 times the average monthly payroll costs, or up to $10 million. The interest rate will be 1% over 2 years.


 Q. Why are they being so nice to me and giving me all this money?


A. It’s not for you. Remember it’s the


Paycheck Protection Program (PPP), part of


The Keeping American Workers Paid and Employed Act.


 Q. Okay. Your Point???


A. They want you to keep your employees. They will make you pay back more of the loan if you have less employees on your payroll compared to last year.


Q. But I’ve already laid off my entire staff because the virus put me out of business! Of course I have less employees than last year! I don’t have ANY employees right now!


A. Great Point! They WANT you to hire them back! If you re-hire the employees you laid off, you will NOT be penalized for having a reduced payroll at the beginning of the period! They want you to WANT to hire them back!


Q. Do I need to have any kind of collateral or make any personal guarantees to get this business loan, the way banks do when I apply for a business loan?


A. If the loan is for less than $200,000, then NO!! You don’t have to personally guarantee anything!!!

Q. Can I apply for both?

A. YES. AND - they are designed to be spent on these different things. You CAN apply for both as long as you use them differently, the way they were designed to be used.

 

 
Q. Okay, that’s pretty good!


===


BUT –


What if I don’t NEED or ever WANT a loan? Does this law do anything else for me as a Small Business Owner?


 A.  Yes.  Back in Title II, that we addressed in the last update, which is 


Assistance for American Workers, Families and Businesses,” here is the part about "Businesses."


Q. Okay? What about "Businesses"?


A. If you don’t apply for an SBA loan, you can get an Employee Retention Credit (ERC) in an amount your share of the FICA taxes equal to HALF of the qualified wages of each employee! The limit is $10,000 of each employee's salary per year, max $10,000 in any quarter. So if you pay someone over $40,000 a year, you are limited to $10,000 per quarter, and then you can't take any moe ERC for that employee.


 Q. FICA taxes? Which tax is that?


A. The 6.2% for Social Security. The tax that caps when an employee earns $137,200 this year. 


Q. So I still have to pay what I withheld from paychecks, and my 1.45% half of Medicare taxes?


A. YES.


Q. So, if I have $10,000 in payroll, I have to match 1.45% of all of it for Medicare, but I only have to match $5,000 of it for the 6.2% FICA tax?


A. YES.


OK. That’s still pretty good. But what’s the catch?


A. There are a few:


1.   You can’t apply for an SBA loan AND get this credit. It’s one or the other;


2.   You have to have 100 or fewer full-time employees;


3.   OR, if you have more than 100 employees, you can claim a credit for those employees who are not working – who are furloughed or face reduced hours because you closed down or because of economic hardship. AND,


4.   The credit is capped at $10,000 per employee per quarter.


5.   And, of course, you have to be experiencing economic hardship because of the virus.


 Q. So, to get me to keep my employees, they are willing to give me credit for my share of the FICA tax of half of these qualified wages???


A. YES!!


 
Q. What happens if the credit is larger than the payroll liability?


A. In that case, you have a refund!


Q. Really? A refund?


A. Yes.


 
Q. Didn’t they pass a law that I already have to pay for sick leave, and they will pay me back for the payroll taxes?


A. Yes.


On March 18th, the “Families First Coronavirus Response Act” (FFCRA) required you to give up to 80 hours of paid leave, up to $200 a day, up to $511 a week, to employees who had to stop working because they were quarantined because they were sick, or self-quarantined as a pre-caution, or had to take leave to take care of a family member. The government gives you a 100% credit on these payroll taxes.


Q. Can I get the 50% credit on top of that?
A. NOPE. No double-dipping. You get the 50% credit if and when you run out of the FFCRA credit.


 Q. You say that this is a credit. That means that I pay the amount and then get credited back for half of the wages. What if payroll taxes are due and I’m expecting the credit but it doesn’t come, or it comes late. Will I be penalized for late payment?


A. NO. If the reason for not making a deposit is due to “reasonable anticipation of the credit,” there will be no penalty.


 AND REMEMBER: YOU CAN ONLY GET THAT 50% RETENTION CREDIT IF YOU DID NOT APPLY FOR EITHER OF THE TWO LOANS ABOVE.

Q. One last Question: Can I apply for a loan, as a Small Business/Sole Proprietor/Independent Contractor, AND apply for unemployment???

A. YES!! YOU CAN!!!

The rationale is that the loan covers the expenses that your business has, while unemployment covers your personal living expenses. If you apply for the loan, use your business name and EIN. If you apply for unemployment, use your name and SSN.
 
 
Q. OK.  I think I got it.  If I don’t apply for the SBA loan, and my business is really hurt by the virus, I still have to withhold taxes from paychecks, and pay my 1.45% share of the Medicare tax, but I only have to pay the 6.2% FICA tax on HALF of the qualified wages?


A. YES!!!


 Q. And if I DO apply for the SBA loan, then I have to pay all the payroll taxes like I normally do?


A. YES!!!



 Q. But what if I just don’t have the money to pay that 6.2% FICA match?


A. THEN YOU DON’T HAVE TO PAY ANY OF IT UNTIL NEXT YEAR!!!


 
Q. Say what now???


A. That right! That 6.2% of the FICA match? For all the payroll you have between now and 12/31/2020? You don’t have to pay it this year.




Q. I don’t have to pay any of it this year???


A. NO!!!


Q. But I still have to pay my 1.45% half of Medicare taxes?


A. YES.


 
Q. But I have to pay it eventually, though, right?


A. Yes. All that FICA tax that you would have paid between now and 12/31/2020, you get to keep until next year.  You have to eventually pay it of course.  You need to pay 50% by December 31st, 2021. The other half doesn’t have to be paid until December 31st, 2022.


 Q. So when I pay my payroll taxes every month, or every quarter, I have to pay what I withheld, and I have to pay my share of the Medicare tax, but I get to keep that 6.2% match of all the FICA from now until the end of the year, until the end of next year????


A. YES!!! You still have to pay all your other payroll taxes, but you don’t have to pay any of the FICA taxes until the following December 31st, 2021. And then, you just pay half of it by 12/31/2021, and then the other half, by 12/31/2022.


Q. I think I got it now. And, WOW. That’s a lot to think about!


A. It sure is.


 
Q. Are there other changes that might affect me?


A. Yes, but they are minor – they involve Net Operating Losses (NOLs), Corporate alternative minimum tax (AMT), allowing more business interest to be deductible, and – I like this one – a temporary exception from the Excise Tax for alcohol used to produce hand sanitizer!



 And there you have it - the business provisions in the CARES Act. 


There is actually more to the Act, believe it or not. But they apply to the supporting our healthcare system, Federal assistance to distressed areas of our economy, and setting up a relief fund for states, territories and tribal governments.


But that's all that applies to us.  we thought about splitting this in two, but we wanted to get this out to you as quickly as possible so that you business owners can apply for the loan and grant as soon as you could, and you who are not business owners -- especially employees of businesses that are shut down - can know what is available to the owners of businesses so that they can hire you back.  You may want to make sure that they know.  


You definitely want to make sure that they know that they have to give you 80 hours of paid leave, up to $511 a week, required by the “Families First Coronavirus Response Act” (FFCRA) signed on my birthday, March 18th. I will probably cover the FFCRA in greater detail in a future update. There is more to it that we wrote here.

More to come!!!





 


Warmly,


David I. Block, EA
David is a registered representative at LifeMark Securities Corp.

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