Coronavirus Resources: Relief Packages & Tax Provisions

March 30, 2020 – The continued spread of the novel coronavirus (COVID‐19) has had a dramatic effect on national and local economies throughout the country. The United States government has taken steps to limit the negative impact of the outbreak and to position the economy to bounce back as quickly as possible. Two primary actions have been taken so far, the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The provisions of these two acts will assist a number of businesses and their employees through these difficult times.

A summary of these two acts follows:

• Families First Coronavirus Response Act (“FFCRA”)
  On March 18, 2020, the President signed the FFCRA into law. The FFCRA requires certain employers to provide their employees with paid sick leave or expanded family and medical leave for specified reasons related to COVID‐19. These provisions will apply from the effective date through December 31, 2020. Note, certain provisions may not apply to certain employers with fewer than 50 employees.
• • Employee is Sick / quarantined due to exposure to COVID‐19
    • 80 hours paid time off @100% pay ($511 per day cap)
      • Diagnosed with virus
      • Quarantined
      • Seeking medical diagnosis
  • Employee is caring for individual who is quarantined or caring for children because school is closed
    • Up to 80 hours paid sick leave @ 2/3 employee’s pay ($200 per day cap)
    • Up to 10 weeks additional at 2/3 pay

The employer receives a dollar for dollar credit to pay for either of the above scenarios with the below listed limits:

• • Sick leave: up to $511 per day, $5,110 total
  • Child Care: up to $200 per day, $2,000 total up to 10 days
  • Entitled to an additional tax credit determined based on costs to maintain health insurance coverage
  • 10 Weeks qualifying leave: $200 per day or $10,000 total
  • Credit administered by reducing payroll tax deposit
• Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
  On March 27, 2020, the President signed the CARES Act into law. The CARES Act has 3 provisions intended to help employers to continue to pay employees.
• • Small Business Loans (“Paycheck Protection Loans”)
    A government backed loan allowing businesses with fewer than 500 employees to borrow up to 2.5x monthly payroll. The loan will be forgiven as long as the business uses it to pay payroll, rent, utilities or mortgage (all of these are referring to business expenses). The Paycheck Protection Program is a modification of the Small Business Association’s (“SBA”) 7(a) loan program, in which the SBA partially guarantees loans made by banks to qualifying small businesses. The Paycheck Protection Program modifies the 7(a) loan program in four important ways: (1) expands the businesses that are eligible for loans, (2) modifies the loan terms, including eliminating guarantee and collateral requirements of the borrower, (3) allows all or a portion of the loan to be forgiven if the borrower maintains its payroll, and (4) modifies a number of provisions to incentivize banks to make such loans and make the loan process faster and more efficient.

• • Employee Retention Credit
    One‐year only credit against the employer’s 6.2% share of Social Security payroll taxes for any business that is forced to suspend or close its operations due to COVID‐19, but that continues to pay its employees during the shut‐down.
    A business is eligible for the credit in one of two ways:
    • 1. The operation of the business was fully or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID‐19, or
    • 2. The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019. The business will then be entitled to a credit for each quarter, until the business has a quarter where it’s recovered sufficiently that its receipts exceed 80% of what they were for the same quarter in the previous year.

For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll taxes equal to 50% of the “qualified wages” paid to EACH employee for that quarter, ending on December 31, 2020.

Qualified wages depend on the size of the business:

• • • More than 100 employees during 2019
      •  qualified wages are limited ONLY to wages paid by the employer during the
        quarter for the period of time the business was shut down
    •  Less than 100 employees for 2019
      • qualified wages include wages paid to employees during a shut‐down, AND wages paid for each quarter that the business has suffered a sharp decline in year‐ over‐year receipts, as described in #2 above

In both cases, qualified wages include any “qualified health plan expenses” allocable to the wages, such as amounts paid to maintain a group health plan. In either case, however, the amount of qualified wages for EACH employee for ALL quarters may not exceed $10,000.

Any wages taken into account in determining the new payroll tax credit for family medical leave or sick leave as part of the Coronavirus Relief Act may not be taken into account in determining qualified wages for the employee retention credit.

The credit is refundable if it exceeds the business’s liability for payroll taxes.
If an employer takes out a payroll protection loan under Section 7(a) of the Small Business Act, no employee retention credit will be available.

• • Delay of Payment of Employer Payroll Tax and Self‐Employment Tax
    In addition to the 3 provisions listed above, the CARES Act also allows for a delay of payment of employer payroll tax and self‐employment tax. The CARES Act allows the employer’s share of the 6.2% Social Security tax that would otherwise be due from the date of enactment of CARES Act through December 31, 2020, to be paid on December 31, 2021 (50%) and December 31, 2022 (50%). The employer can receive an immediate credit against those yet‐to‐be paid payroll taxes via the sum of the emergency medical leave credit, sick leave credit, and new employee retention credit. 

    Similarly, a self‐employed taxpayer can defer paying 50% of his or her self‐employment tax that would be due from the date of enactment through the end of 2020 until the end of 2021 (25%) and 2022 (25%).

This deferral is not available to any business that takes out a payroll protection loan.

Tax law updates included in the CARES Act

The provisions of the CARES Act also made significant updates to the Internal Revenue Code. The
most significant changes are as follows:

• Qualified improvement property depreciable life reduced from 39 years to 15 years and can be subject to 100% bonus depreciation (retroactive to January 1, 2018).
• Tax losses from 2018, 2019, and 2020 will be permitted to be carried back for up to five years. Losses carried to 2019 and 2020 will be allowed to offset 100% of taxable income.
• Temporary hold on Section 461(l), retroactive to January 1, 2018, which removes the limit of business losses an individual can use to offset taxable income. Returns can be amended for refunds. The hold will end for tax year 2021.
• The limitations on interest expense deductions under Section 163(j) have been increased to 50% of adjusted taxable income from 30%. For 2020, corporations can use 2019 adjusted taxable income in determining the allowable deduction.

There are numerous options and provisions under these two acts that may be available to you and your company. If you or your company is interested in discussing either the Families First Coronavirus Response Act or CARES Act further, please contact one of tax partners to determine if and how these acts could assist you during this challenging time:

Brian Johnson, CPA                                Gray Suggs, CPA

bjohnson@suggsjohnson.com             gsuggs@suggsjohnson.com

Direct (864) 965‐9616                             Direct (864) 965‐9615
Office (864) 226‐0306                             Office (864) 226‐0306