Many small businesses have been hit hard by COVID-19 in 2020, continuing into 2021. The federal government, the Treasury Department, the IRS, and the Small Business Administration (SBA) have responded by creating several programs to help businesses pay their employees and survive the economic impacts of the coronavirus.
The most recent relief effort is the American Rescue Plan (2021) signed into law March 11, 2021.
Highlights of American Rescue Plan Changes
Highlights of the changes in COVID relief efforts by the federal government for businesses and employers:
- 100% subsidized COBRA coverage for employees who have been laid off or had hours reduced, through September 2021
- New SBA grants to restaurants and bars, with some funds set aside for smaller establishments
- Extension and restructuring of the tax credit to employers for paid family/medical leave benefits
- Extension of the Employee Retention Tax Credit to pay payroll and other costs
- Additional funding for the SBA's Economic Injury Disaster Loan advance program with funds targeted to "severely impacted" businesses
- Extended unemployment assistance, including to some self-employed individuals
In addition, the deadline for applying for Paycheck Protection Program loans has been extended to May 31, 2021.
This article is a preliminary view of several new and updated COVID relief programs that help small businesses and their employees. Updates will be included as they become available.
COVID Relief Options for Businesses
Here are the key small business relief options your business may be able to take advantage of during COVID-19. Some of these have been changed by the America Rescue Plan.
- NEW Restaurant Revitalization Fund for Food and Drink Establishments. The SBA has $25 million in funding for a new program helping restaurants and other food and drink establishments.
- New COBRA subsidies and payroll tax credits help employees terminated or reduced in hours to pay for health care.
- Paycheck Protection Program: Forgivable SBA-backed loans to help small businesses meet payroll costs. The application deadline for this program has been extended to May 31, 2021.
- Economic Injury Disaster Loan Program: A special SBA disaster loan program. An additional $15 billion was added to the EIDL Advance program, and it directs remaining funds to supplemental grants for "severely impacted" small businesses.
- Employee Retention Credit: Reduces payroll taxes for employers who agree to keep employees on the payroll.
- Emergency Paid Sick Leave Act and Emergency Family and Medical Leave Expansion Act: For those who must pay sick leave and family leave benefits to employees. Credits are extended and expanded to cover time off for vaccination-related illness.
- Pandemic Unemployment Assistance: Extends unemployment benefits to those not covered by regular unemployment compensation, including self-employed individuals.
There are only certain relief options you can take advantage of together. Your business can take the Emergency Paid Sick Leave and Emergency Family and Medical Leave Expansion acts and the Employee Retention Credit, but not for the same wage payment.
You can also get both a Paycheck Protection Program loan and an Economic Injury Disaster Loan from the SBA, but not for the same amounts.
New COBRA Continuation Coverage
The COBRA benefit program, under the Consolidated Omnibus Reconciliation Act of 1985 gives continuing health benefits to employees who have been terminated or had hours reduced. Larger employers must continue employees on their health plans, but the former employee usually has to pay the cost.
Under the American Rescue Plan, workers can receive 100% of their COBRA payments subsidized, starting the first month after the program begins through September 30, 2021. These subsidized payments to workers won't be taxable, and employers and health plans can get a refundable tax credit as reimbursement for the full amount of the premiums.
New Restaurant Revitalization Fund
A new $25 billion SBA program will be started to help restaurants and other food and drink establishments, with $5 billion of the amount for businesses with less than $500,000 in 2019 annual revenue. The maximum grant is $10 million, with a limit of $5 million per physical locations (up to 20 locations, and the grants aren't taxable to recipients.
The amount of the grants is set by subtracting 2019 revenue from 2020 revenue, and it may be reduced by amounts received from Paycheck Protection Program loans.
Paycheck Protection Program
The Paycheck Protection Program (PPP) helps small businesses stay open and cover costs during the COVID pandemic.
New PPP Funding Available for 2021
The program has been extended and new funding has become available several times. The most recent is an additional $7.25 billion added to the PPP from the 2021 American Rescue Plan. In addition, the program
- Expands eligibility to additional non-profits, and make larger non-profits eligible for PPP funding
- Makes internet publishing organizations (news and periodical publishers) eligible for funding
The Paycheck Protection Program application deadline, originally March 31, 2021, has been extended to May 31, 2021 to give small businesses more time to apply.
Here are more details about PPP loans:
New forgiveness options are also available.
The loan maximum is 2.5 times average monthly payroll costs, up to $2 million, but accommodation and food service businesses can get up to 3.5 times average monthly payroll costs.
Specific amounts have been set aside to support specific small businesses
- First-time PPP borrowers with 10 or fewer employees
- Second-time PPP borrowers with 10 or fewer employees
- Newly eligible first-time PPP borrowers
- Second-time returning PPP borrowers
How the PPP Works
The Paycheck Protection Program (PPP) loan can be used for all types of payroll costs, including payments for:
- Salaries, wages, commissions, or tips
- Vacation, parental, family, medical, or sick leave
- Group health benefits and insurance premiums
- Retirement benefits
- State or local taxes on employee compensation
Covered payments to self-employed individuals include wages, commissions, income, and net earnings for self-employed individuals. Other covered costs include PPP funds can now be spent on some other costs: property damage costs, supplier costs (including perishable goods, technology costs, and worker protection expenses.
PPP Loan Forgiveness Requirements
You can use the loan for any business expenses and pay it back. But, you don't have to pay it back if you meet specific requirements, To get full forgiveness, 60% of the loan proceeds must go to payroll costs, and the balance must be for rent, mortgage interest, or utilities.
Small loans up to $150,000 can use a simplified forgiveness application, and borrowers can select their loan forgiveness covered period between 8 weeks and 24 weeks.
A loan forgiveness application is available, with instructions for borrowers. The application doesn't change the specific requirements for use of the loan.
Economic Injury Disaster Loans
The SBA has ramped up its disaster loan programs to give relief to businesses that have been affected by the COVID-19 pandemic. These working capital loans of up to $2 million are available through the COVID-19 Economic Injury Disaster Loan (EIDL) program, administered by the SBA.
For short-term relief for small businesses, the American Rescue Plan has temporarily reinstated the EIDL loan advance program, a $10,000 grant for "severely impacted" small businesses that
- Have suffered a loss of at least 50%
- Are located in a low-income census tract, and
- Have 10 employees or fewer
EIDL loan funding continues to be available at 3.75% interest for small businesses and 2.75% for non-profits, a 30-year maturity, and an automatic deferment before monthly payments begin.
The program is available for small businesses with fewer than 500 employees, including sole proprietors, independent contractors, self-employed persons, private non-profits, or 501(c)(19) veterans groups. If your business has more than 500 employees, you may still be eligible for an EIDL as long as you meet the SBA’s size standard for your industry. Sole proprietors seeking these funds must first register with the Federal Emergency Management Agency (FEMA).
The IRS has a flowchart to help you figure out your eligibility for the Employee Retention Credit and the Leave Credits.
Employee Retention Credit
Part of the 2020 CARES Act, the Employee Retention Credit (ERC) gives employers a fully refundable tax credit worth up to 50% of qualified employee wages up to $10,000 paid to employees. The ERC is meant to incentive employers to keep paying employees.
The American Rescue Plan extends this credit through December 31, 2021. Beginning after June 30, 2021, the credit will be structured as a refundable payroll tax credit to employers against the hospital tax credit (Medicare tax). Up to June 30, the tax credit will continue to be taken against the employer's share of Social Security tax.
Self-employed individuals are not eligible for this credit for their self-employment services or earnings, but they may be able to claim the credit for wages paid to employees.
Tax Credits for Emergency Paid Sick and Family Leave
Employers with fewer than 500 employees may decide to give paid sick leave to employees affected by COVID-19. To offset these costs, the employer may get a refundable tax credit to cover the cost of the leave.
The American Rescue Plan makes several changes to this program:
- The program is now voluntary, and it extends from March 21, 2021, to September 30, 2021.
- Increases the wages for which the employer can claim the credit each year from $10,000 to $12,000 per employee.
- The number of days for which self-employe individuals can claim the credit is increased from 50 to 60.
- Employers can claim the tax credit for employee absence to recover from a COVID-19 vaccine or to care for someone recovering from a vaccine.
- Beginning after March 31, 2021, the employer's tax credits will be taken as a refundable payroll tax credit against the hospital insurance tax (Medicare tax).
How the Family Leave Plan Works
The sick leave benefit can include time for the employee’s own health leave or to care for family members who are sick because of the coronavirus.
This applies if the employee:
- Is under a quarantine or isolation order
- Has been advised by a health care provider to self-quarantine
- Is experiencing symptoms of COVID-19 and is seeking a medical diagnosis
- Is experiencing any “substantially similar condition” specified by the U.S. Department of Health and Human Services
- Is caring for a family member who is subject to quarantine or isolation orders or has been advised by a health care provider to self-quarantine
- Is caring for their child if the school or place of care is closed or child care is unavailable
If the employee is caring for themselves, then they are entitled to paid sick leave for up to 80 hours at their regular rate of pay or, if higher, the federal, state, or local minimum wage, up to $511 per day, up to a maximum total of $5,110 during that time.
The paid sick leave for employees acting as caregivers is up to two-thirds of their regular pay, up to 80 hours, with a maximum of $200 per day, up to a total of $2,000 during that time.
In addition to the paid sick leave credit, the Family Medical Leave Act (FMLA) provisions for employers with 50 or more employees have been expanded. The expanded benefits are for employees who can’t work (including telework) because they are caring for a child whose school or place of care is closed or child care is not available.
The benefit is equal to two-thirds of the employee’s regular pay, up to $200 per day, with a maximum total of $10,000, for up to 10 weeks
Paid Sick and Family Leave Credits for Self-Employed Individuals
Paid sick and family leave tax credits are also available to self-employed persons, including:
- Sole proprietors or independent contractors
- Partners in a partnership or members of an LLC
The benefits for individual paid sick leave are available for those who can’t work due to the impacts from the coronavirus that are listed in the above section “Tax Credits for Emergency Paid Sick and Family Leave.” The tax credit is then equal to the number of days during the year that the person can’t work multiplied by the lesser of $511 or 100% of the average daily self-employment income.
The credit for family leave is equal to the number of days out of work multiplied by the lesser of $200 or 67% of the average daily income from self-employment.
Unemployment Benefits for Self-Employed People
Self-employed small business owners have not historically been able to get unemployment benefits, but that’s now changed with the addition of a Pandemic Unemployment Assistance (PUA) program.
Through the American Rescue Plan, this program has been extended through August 29, 2021, for some self-employed who do not qualify for regular state benefits. The total number of weeks available has been increased from 50 to 74.
To qualify, you must be unemployed, partially unemployed, or unable or unavailable to work due to COVID-19 related reasons
To find out more about this unemployment assistance program, contact your state unemployment office.