The Coronavirus Aid, Relief and Economic Security (CARES) Act dwarfs prior efforts by lawmakers to take on economic crises and natural disasters. While key elements of this bill are untested -– and controversial -- it, along with the Family First Coronavirus Response Act (FFCR) passed earlier in March, and the actions of the Administration, created numerous programs to help run specialty retailers and other similar businesses weather the continuing crunch.
Although the roll-out over the weekend was anything but smooth, we expect the kinks to be worked out and for the CARES Act to serve as an invaluable lifeline for small businesses in this time of crisis. B ut it is vital to understand what it is all about, who can benefit and how to be a part of the process.
The CARES Act Facts
For individuals, the most popular, and well-known provision will provide one-time direct payments of $1200 per adult with income below a $75,000 ceiling, $2400 per married couples and $500 per child. Above the ceiling, payments will be gradually reduced, disappearing after an individual’s income reaches $100,000.
The newly-passed legislation, while provideng funding tax breaks and other subsidies, includes an increase in the deduction ceiling for the interest paid by a business from the 39 percent level created by the Tax Cuts and Jobs Act to 50 percent. The new law also provides greater flexibility for businesses to deduct losses against taxable income, but first, addressing unemployment.
The new law allocates $250 billion to expand unemployment insurance to more workers and lengthen the duration to 39 weeks (up from the normal 26 weeks). $600 extra each week would be provided for four months.
To help bring back workers already laid off, the eight weeks of unemployment assistance will be retroactive to February 15, 2020. But, that’s not all, already on the books are the following:
* Fortunately, for those employers required to pay sick leave to employees, there is a compensating, 100 percent tax credit, a direct reduction of their tax bill rather than a deduction.
* An employee retention tax credit that is estimated to provide $50 billion to businesses that retain employees on their payroll will cover 50% of workers’ paychecks up to $10,000. Independent running retailers dealers will also be able to defer payment of the 6.2 percent Social Security payroll tax for two years.
* The so-called “Pandemic Unemployment Assistance program is aimed at self-employed and contract workers who are typically not eligible for unemployment payments. Unemployment insurance now extends to the self-employed, including independent contractors, independent sales reps, freelancers and so-called “gig” workers. Those with a limited liability company (LLC) or S corporation qualify.
* Also included are incentives for work-sharing and a program to cover a portion of lost wages for workers whose hours have been reduced, designed to incentivize businesses to retain workers by employing them for less time.
Paying for It All
The CARES Act contained a number of programs and funding to help every run specialty business weather the financial impact of the Coronavirus Pandemic, including:
* Mostly for businesses with more than 500 employees, the latest stimulus bill provides $500 billion to back loans. However, any business receiving a loan will be subject to a ban on stock buybacks and curtailment of executive bonuses.
* Zero-interest loans for retailers and their vendors with fewer than 500 employees -– loans that could be forgiven under certain circumstances such as not firing workers.
* Paycheck Protection Loans: The CARES Act earmarks $349 billion for loans to small businesses -– to be spent on rent, payroll and utilities treated as a grant that does not have to be repaid. The SBA will guarantee loans of up to $10 million, with terms of up to 10 years and interest rates of up to four percent to retailers with fewer than 500 employees — basically, every run specialty shop. The actual loans will be provided by lenders, including banks and credit unions. Eligible businesses can get loan deferment for six months to a year with the loan forgiven if the business maintains its payroll for eight weeks at employees’ normal salary levels.
* Expanded Economic Injury Disaster Loans: The SBA is providing expanded access to working capital loans of up to $2 million to small businesses impacted by Coronavirus. These loans carry an interest rate of 3.75 percent with loan terms that vary by applicant, up to a maximum of 30 years. The expanded program for sole proprietors and businesses with fewer than 500 employees doesn’t require personal guarantees on loans under $200,000, while payments can also be deferred for up to four years.
* Emergency Grants: SBA Economic Injury Disaster Loan applicants can qualify for grants of up to $10,000, to be used to provide employee sick leave, maintain payroll or meet other needs such as paying rent -- even if denied a loan.
Correcting the Retail “Glitch”
When Congress raised bonus depreciation to 100 percent, they limited the write-off to business property with a useful life of 20 years or less. Now, Congress has corrected this oversight and defined qualified improvement property as 15-year property, allowing 100 percent of the cost of improvements to be deducted in the year incurred.
Also, keeping in mind that “lost income” is not a legitimate tax deduction, other provisions in the tax law may help run specialty store owners recover financially from the tax impact of the Coronavirus Pandemic and other disasters, especially when the federal government declares their location to be in a major disaster area.
Both individuals and businesses in a federally declared disaster area can get a faster tax refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended tax return. Regular business losses must be deducted from this year’s income -– if there is any,
A Net Operating Loss, or NOL, occurs when a business has more tax deductions than taxable income in a given year. NOL carrybacks formerly generated a refund of taxes paid in earlier years that provided an often-badly needed infusion of cash. Today, most NOLs arising in tax years after 2017 can only be carried forward. What’s more, for losses arising in taxable years beginning after December 31, 2017, the NOL deduction is limited to 80% of taxable income (determined without regard to the deduction).
And, don’t forget, while a run specialty retail business can’t get this tax break if it is a pass-through entity (such as sole proprietorships, partnerships or S corporations), their owners can apply their NOL on their personal tax returns. Regular corporations are, of course, taxed at the corporate level and the NOL carryforward is applied on the corporate tax return.
Help Already on the Way
Thanks to the FFCR Act passed early in March, employers providing paid family and medical leave to their employees may claim a tax credit that has been extended through 2020. There are similar tax credits for self-employed individuals.
The Treasury Department, the IRS and the Department of Labor earlier announced that small and midsize employers can take advantage of two new refundable payroll tax credits. Both are designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related employee leave.
Although the provision requiring employers to pay sick and medical leave to workers has been extended to include the 2020 tax year, employers with fewer than 50 employees are eligible for an exemption from the requirement to provide leave to care for a child whose school is closed or child care is unavailable.
To take immediate advantage of the paid leave tax credits, a store owner can retain and access funds that they would otherwise be paid to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS using a soon-to-be released, streamlined claim form.
Self-Help Coronavirus Survival
Many run specialty retailers are busy attempting to fathom the steady stream of new government programs, plans and benefits, may be overlooking remedies that already exist. Consider:
* Line-of-credit. A pre-established line of credit allows the business to borrow in increments as needed, repay it and borrow again as long as the credit line remains open. Typically, the operation is required to pay interest on any balance borrowed and a lesser amount for having ready access to the unexpended amount of the line of credit.
* Business Interruption Insurance is coverage that replaces business income lost in a disaster that many are unaware of. Business Interruption Insurance is not sold as a separate policy, but is usually either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.
* And don’t forget those extended deadlines for both filing tax returns and paying taxes. Although the March 15 tax filing deadlines for many businesses have passed, individuals, including independent store owners and other small business owners, now have until July 15 to file. Best of all, if money is owed the IRS, delayed payments will be interest and penalty-free for 90 days.
As this ever-evolving fight against the Coronavirus continues, attention must be paid to new developments. As always, the ever-changing response the Pandemic and the complexity of the rules when dealing with its economic impact, make professional assistance advisable.