UPDATED — April 7, 2020:
- The Families First Coronavirus Relief Act and the CARES Act have added some additional regulations for small businesses. If you are an employer with less than 500 employees, the Family Medical Leave Act now applies to you and you may be required to provide paid sick leave to employees affected by COVID-19.
- Governor DeWine signed an Executive Order on April 1, 2020 issuing a moratorium on commercial evictions for 90 days and for landlords and lenders to provide commercial tenants a 90 day forbearance from lease payments and mortgage payments due to COVID-19. As with any forbearance agreement, it is important to read the details. Forbearance agreements may include a balloon payment at the conclusion of your forbearance terms.
UPDATED — April 3, 2020:
- Some companies are beginning to stop 401(k) matches for their employees as a result of the COVID-19 outbreak and economic contraction. CARES Act and Families First Coronavirus Relief Act provide small businesses relief in this regard that can allow small businesses to continue to cover their 401(k) match contributions.
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Bill was passed by the Senate earlier last week with a vote of 96-0 and subsequently passed in the House of Representatives following a brief debate and discussion of the changes implemented in the Senate.
Prior to the passage of the CARES Act, President Trump also signed into law the Families First Coronavirus Relief Act (FFCRA Act) which provided expansion under the Family Medical Leave Act (FMLA).
The question becomes — what is in this bill and what programs are available to you as a business owner?
This article will review all the important aspects of the new law and what you can do to benefit during this uncertain time.
- S. Senate and U.S. House of Representatives Passed a $2 Trillion Stimulus Bill
- President Trump Signed into Law on March 27, 2020
- $2 Trillion in Grants, Loans, and Other Benefits
- Certain Loans Are Forgivable for Businesses
- New Legal Compliance Requirements for Employees and Disclosure Requirements Due to Employees
- Tax Relief Options
Under the CARES Act, there are a variety of loan programs available for businesses during the outbreak of COVID-19. Specifically, there are $350 billion in loans available for small businesses to access. In addition, these loans are eligible for forgiveness if the loans were used to pay:
- Payroll Taxes
- Independent Contractors
Once the loan is obtained, a business will need to document all of the amounts paid toward payroll in the following 8 weeks. At the conclusion of the COVID-19 pandemic, the business will be eligible to apply for these loans to be forgiven if used for qualifying expenses. In addition to salaries, payroll taxes, and payments to independent contractors, any amounts spent on mortgage interest, lease payments, and utilities that were in place prior to February 15, 2020 will also potentially be forgiven.
Information regarding the forgiveness of these loans for businesses is still a fluid situation and information is changing every day. However, when it comes time to apply for loan forgiveness, the appropriate documentation will need to be maintained and submitted to the lender showing that these loan funds were used for qualifying expenses.
As part of these new loan programs under the CARES Act, you can also request a $10,000 grant with your loan application and the grant will be disbursed to the small business within 3 days.
Early Withdraw Penalties on Retirement Accounts Waived
In addition to loan programs, some business owners and families, may seek to withdraw funds held in their retirement accounts to get through this period of economic contraction and economic shutdown effecting businesses and families.
Generally, any amount that you draw out of your IRA, 401(k), 403(b), or other retirement account prior to age 70½, is not only subject to ordinary income tax as taxable income but is also subject to a 10% early withdraw penalty.
However, under the CARES Act, the 10% penalty is waived on any early withdrawals for families impacted by COVID-19. In addition, the amount may also be excluded from your taxable income. The IRS is allowing individuals to defer the tax on these early withdrawals and/or recontribute the money taken out over the next three years.
Therefore, if you take out $20,000 from your retirement account, but contribute back into your retirement account the entire $20,000 over the next three years, the $20,000 withdrawal will not be included in your taxable income.
$10 Billion in Disaster Relief Loans
Under the CARES Act, and the Families First Coronavirus Relief Act, affected businesses can apply for SBA 7(b) Disaster Relief Loans. These loans can be used for other operation expenses of your business not related to payroll, rent, mortgage interest, and utilities. There are some exceptions to the use of these loans. Although, based on the language of the CARES Act, these loans are generally not eligible for loan forgiveness.
Defer Payroll Taxes for 2 Years
The CARES Act also provides payroll tax relief and deferral to businesses. Under the CARES Act, you can defer your 2020 payroll taxes by paying 50% by the end of 2021 and paying the remaining 50% by the end of 2022.
Amend Prior Tax Returns for Rebates Related to Net Operating Losses
A business that records a net operating loss in 2018, 2019, and 2020 can amend those prior filed tax returns to receive a refund/rebate instead of applying a net operating loss carry forward. Further, the IRS will be permitting businesses to go back a total of five years of net operating losses. This can allow businesses to obtain additional tax relief by amending prior tax returns.
Payroll Tax Credit
An additional form of tax relief under the CARES Act allows businesses to receive a payroll tax credit of 50% of wages paid to employees if operations were partially or fully suspended or the gross sales declined by more than 50% when compared to the same quarter in a prior year. This tax credit is in addition to the 100% payroll tax credit under the Families First Coronavirus Relief Act which allows a 100% payroll tax credit for all payroll paid out to an employee affected by COVID-19 and electing paid FMLA relief.
The 50% payroll tax credit is limited up to $10,000 per employee per quarter under the CARES Act.
Family Medical Leave Act Expansion Under Families First Coronavirus Relief Act
As mentioned above, prior to the passage of the CARES Act, Congress passed and President Trump signed into law, the Families First Coronavirus Relief Act (FFCRA Act). This new law is limited in duration (April 1, 2020 through December 31, 2020), and vastly expands the requirements of businesses under FMLA when it comes to paid leave.
Specifically, instead of FMLA applying to businesses of 50 employees or more, FMLA now applies to employers of 500 employees or less.
Under the expansion to FMLA, employees are eligible to 2 weeks of paid time off for those who are infected, quarantined, recovering, or who are caring from someone, in the same household, who is recovering from COVID-19.
In addition to 2 weeks of paid time off under FMLA, there is an additional 12 weeks of paid time off at the rate of at least 2/3 of the employee’s normal pay rate.
FFCRA also mandates that eligible employees also include employees who have childcare closed resulting in the employee being required to remain at home.
This paid time off under FMLA is in addition to any PTO/Sick Time/Vacation Time currently offered by the employer.
However, if you have 50 employees or less and paid leave will jeopardize the financial viability of the business, the employer can apply for an exemption from the paid time off requirements under FMLA.
The first 10 days of leave can be unpaid. However, the employee may elect to substitute vacation or sick pay which the employee has accrued to cover some or all of the initial 10 days which are unpaid.
The expanded responsibilities to paid time off under FMLA apply to both full-time employees and part-time employees.
Finally, as one can expect, with these expanded requirements under FMLA, the employer is required to provide their employees notice of the employees new expanded rights under FMLA.
What Does This Mean for Businesses?
Under the CARES Act and FFCRA Act, there are a host of items for businesses to consider as they move forward. In general, a business needs to complete the following to comply with the new federal legislation:
- Corporate Books and Records Updated – If you have not completed your annual corporate minutes, you need to take care of this requirement to complete your loan applications and ensure the applications are approved
- Financial records, P&L, sales figures, prior year tax returns, and other financial records need to be updated in order to apply for these loans
- Maintaining corporate records and financial records during this time so you are eligible for loan forgiveness
- Updating tax records and reviewing prior year tax returns to take advantage of new net operating loss rules and payroll tax credits
- Updating employee handbooks regarding the update to the paid sick leave under FMLA, and delivering them to employees
- Updating corporate books and records in light of the expansion under FMLA regarding sick leave and FMLA leave
- Updating employee policies to comply with Paid Time Off requests under FMLA
- Updating employee policies regarding employee termination policies and employee lay off policies in line with the new federal legislation
- If you have 50 employees or less and need to apply for an exemption from FMLA, completing your application and maintaining the records you need to ensure that the exemption is granted
However, as we stated above, this is a fluid situation and the new information is changing daily. Therefore, please make sure you check back with us for new and changing information that may affect you and your business.
For More Information
We are helping our clients with the items above and complying with the various employment, tax, and financial laws and regulations so that they can obtain the loans necessary, ensure that they maintain eligible for loan forgiveness, comply with corporate record policies, and most importantly, make sure that they handle employment issues appropriately during this difficult time.
If you have questions regarding the Families First Coronavirus Relief Act and/or the CARES Act, please contact our office for a 60-minute telephone or video conference to discuss how these laws affect your business and what you can do to access these government programs to assist your business during this unprecedented time.
The attorneys at Aronoff, Rosen & Hunt, LPA are here to help you!
Please contact us at (513) 241-0400 or use our contact form to schedule your 60-minute telephone or video conference to discuss these legal issues affecting your business.