COVID-19 has had a broad impact on the U.S. economy at large and on the nation’s businesses, and legislation offers opportunity for relief. The Families First Coronavirus Response Act (FFCRA Act), The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and other rules have been enacted to help business owners.
The following features impact business owners:1
- Emergency Paid Sick Leave. Employers with less than 500 employees must provide their full time employees with 80 hours of emergency paid sick leave subject to daily caps and pay limits.2 Employers with less than 50 employees may be exempt.
- Expansion of the Family and Medical Leave Act. Employers with less than 500 employees must allow eligible employees up to 12 weeks of emergency paid family leave if the employee is unable to work because their child’s school has been closed or a childcare provider is not available due to COVID-19. The pay is capped at $200 per day and total pay cannot exceed $10,000. Employers with less than 50 employees may be exempt.3
- Business Employee Leave Tax Credit. Employers are allowed to take a tax credit to cover certain costs of providing employees with required emergency sick leave and family and medical leave related to COVID-19.
- Employee Retention Credit. Employers will receive a 50% refundable payroll tax credit if their business has been fully or partially suspended because of government’s limitation on commerce or if their business has experienced a 50% decline in gross receipts. The credit is calculated based on a maximum of $10,000 of qualified wages per employee, including health benefits, paid from March 13, 2020 through December 31, 2020.4
- Paycheck Protection Program. Small businesses with 500 or fewer employees, sole proprietors, independent contractors and self-employed individuals may obtain a loan to cover certain payroll costs.5 Loan processing fees are waived and loan repayment may be deferred for up to 6 months. Employers are able to obtain tax-free debt forgiveness for the loan allotted to maintain payroll costs and other qualified expenses between February 15, 2020 and June 30, 2020. Loan forgiveness would not apply to any payroll costs covered by the Emergency Paid Sick Leave and/or Family and Medical Leave Act.
- Emergency Injury Disaster Loans (EIDL). When applying for an EIDL, a business may request an emergency grant advance of up to $10,000 that must be distributed within three days. The applicant will not be required to repay the emergency grant advance if their loan is ultimately denied. If a business receives an emergency grant and applies for a Paycheck Protection Program loan, the amount of the grant will be subtracted from the total amount forgiven under the Paycheck Protection Program.
- Payroll Tax Deferral. Employers and self-employed individuals may defer paying Social Security taxes through the end of 2020. The deferred amount must be repaid; 50% by the end of 2021 and the remaining 50% by the end of 2022.
- Deductibility of Business Interest Expenses. The limit on the deductibility of business interest is increased to 50% for tax years beginning in 2019 and 2020. A partnership may only take advantage of this increase for tax year 2020.
- Ability to Use Business Losses Expanded. The 80% income limitation on losses for tax years beginning before 2021 is repealed. Businesses will be able to carryback losses from 2018, 2019 and 2020 over the previous 5 years to obtain a tax refund on taxes paid in years that were profitable.
- Charitable Contribution Deductions. The charitable deduction limit is increased from 10% to 25% of a corporation’s taxable income for cash contributions made in 2020.
Talk to your financial professional
You don’t have to face this alone — your financial professional can help you determine how your plans are affected by the legislation. You can Find a Financial Professional among the Penn Mutual network of professionals to help you navigate these changes.
Please note, the requirements and availability of these programs change almost daily. Be sure to work with your financial professional and personal tax advisor to navigate how these may impact you and your business.
1More information is available at https://www.irs.gov/coronavirus
2If the employee has symptoms associated with COVID-19 and is pursuing a medical diagnosis, is under a mandated federal, state, or local quarantine order due to COVID-19, or a has been advised by a health care provider to self-quarantine, paid sick time is capped at $511 per day and the total pay cannot exceed $5,110. If the employee is taking care of a child because the child’s school is closed or a childcare provider is not available or if caring for another dependent family member, paid sick time is capped at $200 per day and the total pay cannot exceed $2,000.
3Employees are eligible for this benefit if they have worked for at least 30 days and have a child under age 18 (or older if the child is incapable of self-care because of a mental or physical disability).
4If an employer is the recipient of a loan that is ultimately forgiven under the Paycheck Protection Program, the employer will not be eligible for an Employee Retention Credit. An employer cannot receive retention credits in addition to Paid Family Leave and Paid Sick Leave credits for the same payments made to an employee.
5The maximum amount of an employer’s loan can equal up to 2 months of their average monthly payroll costs from the last year plus an additional 25% of that amount. Eligible payroll costs do not include compensation above $100,000 in wages or employees residing outside the United States. The maximum amount of any loan will be capped at $10 million.
Securities and Investment Advisory services are offered through Registered Representatives of Hornor, Townsend & Kent LLC (HTK), Registered Investment Adviser, Member FINRA/SIPC, 600 Dresher Road, Horsham, PA 19044. 215-957-7300. HTK is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Note: Federal laws are subject to change and the information above may not reflect recent changes in the laws. You should consult with your personal tax and legal advisors regarding your personal situation. The material contained in this document is based on Penn Mutual’s understanding and interpretation of current law. Penn Mutual, its affiliates, employees, financial professionals and representatives may not give legal or tax advice. Any discussion of taxes in this document is for general information purposes only and does not purport to be complete or to cover every situation. You should consult with and rely on your own independent legal and tax advisors regarding your particular set of facts and circumstances.
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