COVID-19 Tax Relief for Businesses
As a follow-up to our previous post regarding COVID-19 tax relief for individuals, we wanted to provide an overview of tax relief provisions (and some non-tax specific assistance) the U.S. government has made available to businesses who are negatively impacted by the COVID-19 pandemic. As a small business ourselves, we empathize with the struggles and fallout that fellow businesses are experiencing as a result of the coronavirus chaos. We hope that the information on COVID-19 assistance outlined below is found helpful.
Tax Return Filing and Payment Due Date
For calendar year corporate taxpayers with a federal income tax return or a federal income tax payment due on April 15, 2020, the due date for filing and paying is automatically postponed to July 15, 2020, regardless of the size of the payment owed.
Note that state income tax return filings and payments may have different due dates. For example, Hawaii has automatically postponed the filing of 2019 Hawaii income tax returns and related balances due with those returns from April 20, 2020 to July 20, 2020. However, Hawaii has not postponed the due date for first quarter estimated tax payments for the tax year 2020 – such payments are still due by April 20, 2020.
Note that there was no change to federal tax return filing and payment due dates other than April 15, 2020. Partnership, S corporation, and fiscal year corporate tax return filing and payment due dates currently remain unchanged.
Small Business Administration (SBA) Loans
There are two types of low-interest SBA loans that are available to businesses: paycheck protection program loans (PPP); and economic injury disaster loans (EIDL).
SBA PPP loans are generally available for businesses with fewer than 500 employees that were in operation before February 15, 2020. The maximum amount of such loans is the lesser of $10 million or 2.5 times the average monthly payroll costs for the one-year period before the loan is made. The maximum loan is 10 years and interest rate is a fixed 1%. Interest payments will be deferred for one year with these loans. These loans are eligible for forgiveness if used for certain items (payroll, rent, utilities, and interest payments on secured debt obligations). Any loan forgiveness would not be treated as taxable to the business. SBA PPP loans have restrictions on the use of loan proceeds – they should be used for payroll, rent, utilities, and interest payments on secured debt obligations. The loans will be unsecured and will not require a personal guarantee. The deadline for applying for SBA PPP loans is June 30, 2020. The application for the SBA PPP loan and related information can be found here.
SBA EIDL loans of up to $2 million are also available to businesses, with a rate of 3.75% (or 2.75% for non-profit organizations). The maximum loan term is 30 years. Principal and interest payments can be deferred up to 4 years. SBA EIDL loan proceeds may be used to pay for expenses that could have been met had the COVID-19 pandemic not happened (e.g. payroll and other operating expenses). SBA EIDL loans are not eligible for the same loan forgiveness as the SBA PPP loans, however applicants of SBA EIDL loans are eligible for a $10,000 Emergency Grant, which is an advance of the EIDL loan that is to be distributed within 3 days of applying for the loan. The SBA will not require that the advanced $10,000 be repaid, even if the business is subsequently denied an EIDL loan. The Emergency EIDL Grants will expire on December 30, 2020. The application for the SBA EIDL loan and related information can be found here.
A business may apply for both an SBA PPP loan and an SBA EIDL loan. If an Emergency EIDL Grant is received by a business, the amount of the Emergency EIDL Grant is subtracted from the amount of the SBA PPP loan that is forgivable.
The rules for the SBA loans are complex – please seek guidance from the SBA or your bank regarding the loan process and to ensure your business is abiding by the rules and requirements of the loan, particularly if you are applying for the Emergency EIDL Grant or SBA PPP loan forgiveness.
Employee Retention Tax Credit
Businesses who have experienced a 50 percent reduction in quarterly receipts, or have been fully or partially suspended as a result of a government order, may be eligible for a quarterly payroll tax credit if they retain their employees during the COVID-19 pandemic. This payroll tax credit would be equal to 50 percent of qualified wages paid to employees and is limited to $10,000 per employee for the year. The payroll tax credit applies to qualified wages paid after March 12, 2020 and before January 1, 2021. Note that this tax credit is not available if the business takes an SBA paycheck protection loan.
Paid Leave Tax Credits
Paid leave payroll tax credits are available to businesses with employees who were affected by COVID-19 and were on paid leave. These tax credits are designed to be a reimbursement for the costs of providing paid leave to employees affected by COVID-19, given the new requirements to provide paid leave to such employees.
Payroll Tax Deferral
The employer portion of payroll taxes due from March 27, 2020 through December 31, 2020 are eligible for deferral. Half of the deferred payroll taxes are due on December 31, 2021, with the remaining half being due on December 31, 2022. The payroll tax deferral also applies to 50 percent (i.e. the employer portion) of the self-employment tax for self-employed individuals.
Net Operating Losses
Net operating losses arising in a tax year beginning after December 31, 2017 and before January 1, 2021 may be carried back five years unless the carryback period is waived. Net operating losses for this period can be carried forward indefinitely, and are not subject to the 80 percent of taxable income limitation set in place by the Tax Cuts and Jobs Act in 2018.
Conclusion
The above summary of government assistance does not delve into the technical details of the various provisions – it is meant as more of a resource for businesses to gain awareness of the various sources of government help that is available to them. If you would like to discuss any of the above items in more detail, please feel free to reach out to us via e-mail or phone.
While the information in this post is considered to be true at the date of publication, changes in tax laws and other circumstances after the time of publication may impact its accuracy. Please consult a professional for the latest information.