Small Business Relief Options During COVID-19
Paycheck Protection, Disaster Loans, Tax Credits, and More
Many small businesses have been hit hard by COVID-19 in 2020. The federal government, the Treasury Department, 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.
Here are the key small business relief options your business may be able to take advantage of during COVID-19:
- Paycheck Protection Program: Forgivable SBA-backed loans to help small businesses meet payroll costs.
- 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.
- Pandemic Unemployment Assistance: Extends unemployment benefits to those not covered by regular unemployment compensation, including self-employed individuals.
- Economic Injury Disaster Loan and Emergency Advance: Gives quick cash to businesses as they apply for economic injury disaster assistance. (Currently on hold)
- Main Street Lending Program for small and medium-sized businesses, instead of or in addition to Paycheck Protection Program Loans.
Unfortunately, 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 payments. You also can’t receive the Employee Retention Credit if you receive a loan through the Paycheck Protection Program.
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.
If your business is in need of relief due to events unrelated to the coronavirus, the SBA also offers general small business disaster relief loans.
Paycheck Protection Program
As part of the CARES Act, the SBA directed $349 billion to small businesses with 500 or fewer employees and businesses in specific industries with more than 500 employees (accommodation and food services businesses). In April 2020, new legislation added an additional $321 billion to the program. Sole proprietors and independent contractors are also included. The program is available until June 30, 2020.
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.
The program specifically excludes payments to employees with annual salaries over $100,000, and for employees who live outside the U.S. Also, if your business receives a tax credit for sick leave payments or family leave payments under the Families First Coronavirus Response Act, you can't include them in the loan.
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 – 75% of the loan proceeds must go to payroll costs, and the balance must be for rent, mortgage interest, or utilities.
A loan forgiveness application with instructions for borrowers is available. The application doesn't change the specific requirements for use of the loan or the requirement that the loan proceeds must be spent within eight weeks (56 days) of the time the loan was disbursed by the lender. It does give specifics on how to complete the forgiveness application. This isn't the application for the PPP loan; it's the application for getting forgiveness (PDF link here).
The loan matures in two years and has an interest rate of 1%. Loan payments will also be deferred for six months. You must apply through a bank, credit union, or other lenders for this disaster loan.
Main Street Lending Program for Small and Mid-Sized Businesses
On Thursday, April 9, 2020, the Federal Reserve announced even more support for the economy with up to $2.3 trillion in loans to "assist households and employers of all sizes" through its Main Street Lending Program (MSLP).
The Federal Reserve is working on the details of this program. You can sign up with the Federal Reserve Bank of Boston to get updates on the start date.
The Main Street program is designed to support small and medium-sized businesses that were not able to get a PPP loan or need additional funding in addition to the PPP program. Main Street loans are not forgivable. The program will continue until September 30, 2020, unless it's extended.
Your business can apply for one of these loan programs if you meet specific requirements, including:
- Being a U.S. business established before March 13, 2020, and
- Having 15,000 employees or fewer, or having 2019 annual revenues of $5 billion or less.
In addition, certain types of businesses are ineligible, as are businesses receiving CARES Act assistance through the Coronavirus Economic Stabilization Act
To apply for this program, you must submit an application and documentation to an eligible lender.
Economic Injury Disaster Loan and Emergency Advance
The SBA is not currently accepting applications for the COVID-19 Economic Injury Disaster Loan(EIDL) and EIDL Advance programs, except for agricultural businesses, as of Friday, April 17, 2020.
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).
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).
Small businesses can also get a loan advance of up to $10,000 within a few days of applying for the EIDL. The loan advance will not have to be repaid.
Employee Retention Credit
Part of the 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 after March 12, 2020, and before Jan. 1, 2021. This means the maximum tax credit for wages paid to any employee during this time period is up to $5,000. The ERC is meant to incentivize employers to keep paying employees.
The IRS announced (May 7, 2020) that employers can stay eligible for the Employee Retention Credit while they continue to give health insurance to employees who have been laid off. Eligible employers may treat their health plan payments to employees as qualified wages even if the employee is not working. See this IRS Employee Retention Plan FAQ (#64 and #65) for more information.
Qualified employee wages are wages and compensation paid by an eligible employer after March 12, 2020, and before Jan. 1, 2021, including qualified health plan expenses. However, it also depends on the number of employees.
- If you averaged more than 100 full-time employees in 2019, qualified wages would be equal to what the employee would have been paid for working the equivalent time during the 30 days immediately before the period of economic hardship. For example, if an employee was working 25 hours per week before March 12, 2020, their wages would be the equivalent of what they would have been paid for 25 hours per week.
- If you averaged 100 or fewer full-time employees in 2019, qualified wages are wages paid to any employee during the period of economic hardship.
Employers are eligible for this tax credit if they have partially or fully suspended operations during 2020 due to government orders of the suspension of travel, commerce, meetings, and more, or if they had a significant decline in revenue.
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.
How Is It Fully Refundable?
This tax credit is also different because it’s fully refundable. This means you can get a refund if the amount of the credit is more than the federal employment taxes you owe.
First, calculate the amount of the credit for a tax quarter for an employee. Let’s say you paid the employee $10,000 for the quarter. Your tax credit is 50% of those wages, or $5,000 (which is the maximum). Then, you can deduct this from your share as employer of Social Security wages paid to all employees for the quarter. (The employer's share of Social Security wages is 6.2%.)
If the amount of tax credits for employees is greater than the employer part of the Social Security tax on all wages paid to all employees, the excess is considered an overpayment. The overpayment is applied to offset other tax liability on Form 941 (the employer’s quarterly tax report) and after reducing it for certain other tax liabilities. Anything left is refunded to you.
If you need the funds before you file your quarterly tax return, you can request an advance payment from the IRS via Form 7200.
Tax Credits for Emergency Paid Sick and Family Leave
Employers with fewer than 500 employees must now 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 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.
How the Tax Credits Work
The tax credit for employers is equal to 100% of the amount of the required paid sick leave or family/ medical leave plus the employer cost of Medicare tax on those wages and the cost of health insurance coverage for the employee during the leave period. In addition, the employer is not subject to the employer portion of the Social Security tax on those wages.
You can get the tax credits by keeping them instead of depositing them with the IRS. Normally, employers must make payroll tax deposits semi-weekly or monthly, depending on the amount of taxes. If you pay qualified leave wages, you can keep the amount of federal employment taxes up to the total amount of the credits instead of depositing them with the IRS. If your credits are greater than the employment taxes, you can request an advance payment from the IRS.
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.
In both instances, the maximum number of days is 10, and those days must have occurred after April 1, 2020, and before Jan. 1, 2021.
You can claim the tax credit against your self-employment taxes on your 2020 tax return (Form 1040 or 1040-SR). If you need the money before filing your return, you can reduce the amount from your quarterly estimated tax payments.
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. If you are self-employed and you have lost income due to the coronavirus, you may be eligible for up to 39 weeks of benefits, retroactive for weeks starting on or after Jan. 27, 2020. PUA benefits cannot be paid for weeks of unemployment ending after Dec. 31, 2020. Additionally, you may be eligible for an additional $600 beyond the amount of your state benefit through July 31, 2020.
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.
Congress.gov. "Coronavirus Aid, Relief, and Economic Security (CARES) Act." Accessed May 23, 2020.
U.S. Small Business Administration. "Paycheck Protection Program." Accessed May 23, 2020.
Federal Reserve. "Main Street Lending Program Frequently Asked Questions." Accessed May 23, 2020.
U.S. Congress. "CARES Act Title IV Subtitle A - Coronavirus Economic Stabilization Act of 2020." Page 5. Accessed May 23, 2020.
U.S. Small Business Administration. "COVID-19 Economic Injury Disaster Loan Application." Accessed May 23, 2020.
U.S. Small Business Administration. "Disaster Loan Applications." Accessed May 23, 2020.
IRS. "Employee Retention Credit." Accessed May 23, 2020.
IRS. "FAQs: Employee Retention Credit under the CARES Act." Accessed May 23, 2020.
IRS. "COVID-19-Related Tax Credits for Required Paid Leave Provided by Small and Midsize Businesses FAQs." Accessed May 23, 2020.
IRS. "COVID-19-Related Tax Credits: General Information." Accessed May 23, 2020.
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U.S. Department of Labor. "U.S. Department of Labor Published Guidance on Pandemic Unemployment Assistance." Accessed May 23, 2020.