CARES Act: What Every Small Business Should Know

By Joe Nagel, Esq., LLM, CPA

During these uncertain and stressful times, the United States government recently passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act was intended, to among other things, provide support for businesses during the COVID-19 pandemic. Due to the importance of the CARES Act, we have provided a discussion of key points that every small business should know.

What is the Paycheck Protection Program?

As one of the largest and most important sections of the CARES Act, the Paycheck Protection Program has set aside $349 billion dollars for Section 7(a) small business loans. Given the importance of this section, our firm released an article specifically discussing the intricacies of this program. Please review that article for more information. https://hoffmanestatelaw.com/sba-loans-authorized-by-cares-act-for-small-business-owners/.

What are Economic Injury Disaster Loans?

In March of 2020, the SBA’s disaster loan program was extended to small businesses affected by COVID-19. The CARES Act further opened up this program by making the following changes:

• These loans can be approved by the SBA solely based on the applicant’s credit.
• If the loan is for less than $200,000, then the loan can be obtained without a personal guarantee. 
• Emergency grants in the amount of $10,000 can be provided to borrowers and such grants can be forgiven if the money is spent on the following items: paid leave, maintaining payroll, increased costs due to a supply disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss.
• Importantly, unlike the Paycheck Protection Program, these loans have to be repaid. The only exception is the emergency grant discussed above.
• When applying for this loan, please ensure you have gathered the following information:
  • The legal and trade names of your business
  • Your Federal EIN or Social Security number
  • Gross revenue and cost of goods sold for the twelve (12) months leading up to January 31, 2020
  • The date the business was founded
  • The number of employees
  • The following information for each business owner: (i) percentage of ownership interest; (ii) home address; (iii) phone number; (iv) Social Security number; (v) date and place of birth; and (vi) citizenship status.

Can you obtain a Paycheck Protection Program loan AND an Economic Injury Disaster Loan?

YES! Small business can get both loans on the condition that both loans do not pay for the same expenses.

What other Business Tax Changes were contained in the CARES Act?

Several additional changes were made to better assist small businesses during the COVID-19 pandemic.

• Employee Retention Tax Credit: Eligible businesses can get a refundable 50% tax credit on wages up to, but not exceeding, $10,000 per employee. This credit can only be obtained on wages that were either paid or incurred between March 13, 2020 and December 31, 2020. To qualify, one of the following scenarios must apply to the business:
  • A full or partial suspension of business operations due to a COVID-19 shut-down order; OR
  • Gross receipts declined by more than 50% compared to the same quarter in 2019.
• Delay in Payments of Payroll Taxes: The employer’s share of the social security tax owed for a period beginning on March 27, 2020 through December 31, 2020 can be delayed for a period of two years, provided that 50% must be paid by the end of 2021 while the remaining 50% must be paid by the end of 2022. Importantly, if your business has the Paycheck Protection Program loan, then your business can continue deferring its share of the social security tax until the business receives a decision from its lender that the Paycheck Protection Program loan is being forgiven. Once forgiven, then the business is no longer eligible to defer its share of the social security tax. However, the business’ share of the social security tax that was deferred through the date of forgiveness will continue to be deferred.

• Net Operating Losses: For businesses that had net operating losses for the tax years beginning in 2018, 2019, or 2020, then the net operating losses can be carried back five (5) years.

• Business Interest Expense Deductions: For the tax years of 2019 and 2020, the business interest expenses that can be deducted were raised to 50% of the taxable income of the business. This is increased from the normal business interest deduction set at 30% of taxable income.

• Corporate Alternative Minimum Tax Credits: If a business was to receive a corporate alternative minimum tax credit at the end of 2021, then that business can instead claim a refund now.

If you have any questions regarding the CARES Act and any of the above benefits, please contact Joe Nagel at 404-255-7400 or joe@hoffmanestatelaw.com.