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COVID-19 Stimulus: A Guide to Business Relief Packages and Tax Relief

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Foster Swift Legal Update E-blast
March 27, 2020

Coronavirus Small BusinessThis afternoon, President Trump will sign into law a bipartisan stimulus package designed to blunt the economic impact of COVID-19. The stimulus comes when 24 states, including Michigan, have issued shelter-in-place or stay-home orders. On Monday, Governor Whitmer issued Executive Order 2020-21, which orders most Michigan businesses to either require workers to work from home or suspend operations. 

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2 trillion dollar aid package that will provide grants and loans to consumers, businesses, and state and local governments. Title I, the Keeping American Workers Paid and Employed Act, provides $377 billion to small businesses alone. This article provides an initial summary of the CARES Act, including which businesses qualify for relief, what relief funds can be used for, how businesses can apply for relief, and a summary of other relief efforts that have been announced in addition to the CARES Act. 

Paycheck Protection Program

The CARES Act permits the U.S. Small Business Administration (SBA) to make loans to “small businesses” during this crisis. Small businesses are businesses, 501(c)(3) nonprofits, 501(c)(19) veteran’s organizations, and Tribal businesses that have 500 or fewer employees. The SBA Administrator may permit a greater number of employees for some industries. Self-employed individuals, independent contractors and gig economy workers are also included in the CARES Act’s definition of small businesses. Small businesses that were operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or paid independent contractors, are eligible. 

Eligible small businesses may apply for loans from any SBA-certified lender, such as banks, credit unions, and other financial institutions. The loans may only be used for payroll support, employee salaries (including cash tips) up to an annual rate of pay of $100,000, sick and medical leave, and to cover insurance premiums, mortgage, rent, and utility payments. 

Subject to some conditions, the entire principal amount of the loan may be forgiven if the borrowing business retains employees and maintains their wages relative to the previous year. The amount of the forgiveness is reduced if there is a reduction in employees relative to the prior year or a reduction in pay of any employee greater than 25% when compared to their prior year wages. An employer that laid off employees or reduced payroll at the beginning of the crisis (after February 15) will not be penalized for having a reduced payroll if the employer rehires the workers. 

Please see the final section of this article for links to more information on SBA loans, and contact a Foster Swift attorney for more information.

Economic Injury Disaster Loans

Under the CARES Act, Tribal businesses, cooperatives, and ESOPs with 500 or fewer employees, as well as any individual who operates as a sole proprietor or independent contractor are now eligible for Economic Injury Disaster Loans (EIDL) administered by the SBA. The SBA will now waive personal guarantees on advances and loans made in response to COVID-19 in 2020 and the SBA may approve and offer EIDLs based on the business’s credit score.  Generally, a business is eligible for an EIDL if it is a small business directly affected by the disaster, that offers services directly related to other certain types of businesses or is indirectly related to an industry likely to be harmed by losses in the community. More information about eligibility for an EIDL and loan requirements is available here.

An eligible business that has applied for an EIDL may request an advance on the loan for up to $10,000 and the SBA must distribute the loan within 3 days. The advance does not need to be repaid even if the EIDL is denied. Similar to the Paycheck Protection Program, the advance can be used to pay for paid sick leave for employees, payroll expenses, rent or mortgage payments, to obtain materials, and to repay unmet obligations due to revenue loss. 

The EIDL advance will be subtracted from the amount forgiven under the Paycheck Protection Program. An EIDL loan can be refinanced into a Paycheck Protection Program loan and would be subject to those conditions. Forgiveness of the EIDL advance and any Paycheck Protection Program loan will not be includable in the business’s taxable income as canceled indebtedness.

Please see the final section of this article for links to more information on SBA loans, and contact a Foster Swift attorney for more information.

Unemployment Insurance Expansion

The CARES Act provides an expansion of unemployment benefits by the federal government. In general, unemployment insurance is distributed by the state and funded by payroll taxes. Governor Whitmer recently expanded Michigan’s unemployment insurance to cover employees who lose their job during this crisis for 28 weeks, up from the 20 weeks previously covered. State unemployment insurance provides workers with up to $362 per week for the 28 weeks. Under the Act, the Federal Government will pay workers an additional $600 per week for four months, raising the total benefit to $962 per week.  The application for unemployment benefits in Michigan is available here.

As written, the $600 provided by the Federal Government is a fixed amount and not capped at 100% of the worker’s former wages. Because of this, some employers may have questions about the decision to retain workers or lay them off workers so they can collect unemployment benefits, rather than keep them on the payroll using the Payment Protection Program loans. Please look for Foster Swift guidance on this issue in the future, and contact a Foster Swift attorney with questions.

Other COVID-19 Stimulus Packages

The CARES Act follows two significant legislative initiatives passed this month. The first was the Coronavirus Preparedness and Response Supplemental Appropriations Act passed on March 6, 2020. This act provided $8.3 billion in emergency funding for federal agencies such as the Department of Health and Human Services, the Centers for Disease Control and Prevention. The SBA received $20 million for its disaster loans program. 

The Families First Coronavirus Response Act was the second legislative initiative and became law on March 18, 2020. The Families First Act is much more expansive than the first legislative initiative. The Families First Act includes the Emergency Paid Sick Leave Act, requiring private businesses with fewer than 500 employees to provide two weeks of paid sick leave for employees subject to quarantine, isolation, or caring for an individual or child due to coronavirus concerns. Also included is the Emergency Family and Medical Leave Expansion Act which provides an employee ten weeks of paid leave if unable to work for providing caring for a child due to child care or schools being closed. The Families First Act provides dollar-for-dollar tax credits for these benefits paid by an employer. It also contains provisions that provide unemployment income stabilization and support to states. 

Currently Announced Relief for Michigan Businesses

            Grants, Loans, and Related Relief

  1. The Economic Injury Disaster Loan Program (EIDL), administered by the Small Business Association (SBA) and discussed above. Visit https://disasterloan.sba.gov/ela/ for more information and to apply. Additional Foster Swift guidance on this point is available here.
  2. Emergency EIDL grants are available to qualifying businesses that have applied for an EIDL loan due to COVID-19 to request an advance that must be distributed in three days. 
  3. Minority Business Development Agencies are receiving grants to provide counseling, education and training for minority businesses in response to COVID-19. More information on minority business development agencies is available at www.mbda.gov.
  4. Grants and loans available through the Michigan Small Business Relief Program, which is administered by the Michigan Economic Development Corporation.
  5. Local programs, such as the Lansing Economic Area Partnership (LEAP), are able to secure funds from the Michigan Small Business Relief Program for local businesses. A qualifying business may apply directly through LEAP. More information is available at www.purelansing.com/businessrelief 

            Tax Credits and Related Tax Relief

  1. An employee retention credit may now offset employment taxes for 50% of qualified wages, up to $10,000 in wages paid during the crisis is allowed for eligible employers. An employer is eligible for the credit if its operations were suspended due to a shut-down order or its gross receipts declined by more than fifty percent compared to last year.
  2. Employers may now defer payment of 50% of 2020 employer payroll taxes until Dec. 31, 2021; the other 50% will be due Dec. 31, 2022. Self-employment taxes may be similarly deferred.
  3. Refundable payroll tax credits are available to small and midsize businesses under the Families First Coronavirus Response Act for paid sick, family and medical leave. The credit for required paid sick leave and required paid family leave can be paid in advance using forms and instructions that the IRS will publish. The IRS has been instructed to waive any penalties for a business’s failure to deposit payroll taxes under Sec. 3111(a) or 3221(a) if the failure was due to an anticipated payroll tax credit.
  4. Employee Benefits. Taxpayers are permitted to withdraw up to $100,000 in distributions from retirement plans related to COVID-19 until December 31, 2020 without a 10% early distribution penalty. Distributions must be repaid within three years. Additional eligibility provisions apply to determine whether a distribution is related to COVID-19. Similarly, plan participants are eligible for plan loans of up to $100,000 with delayed payment. The CARES Act temporarily suspends the required minimum distributions (“RMD”) under Internal Revenue Code section 401 for 2020. The CARES Act also delays 2020 required minimum contributions for single-employer plans until 2021.
  5. Other Tax Changes.  Under the CARES Act, an individual may make a charitable contribution of up to $300 and deduct it above-the-line in computing adjusted gross income.  The CARES Act allows a business to carry back net operating losses from the past five years to offset up to 100% of taxable income. This temporarily repeals the recent change that businesses could only carry forward net operating losses up to 80% of their taxable income. Taxpayers may also forgo the carryback and carry the loss forward. The CARES Act repeals the tax code provision relating to excess business loss limitations. Excess business loss is created when a taxpayer’s total deductions attributable to their business exceeds their total gross income or the gains attributable to the business. Prior to the CARES Act, excess business losses were previously capped at $250,000 per individual or $500,000 for a married couple. The limitation will be reinstated for 2021. The CARES Act also increases the amount of interest expense a business may deduct from 30% of adjusted taxable income to 50% of adjusted taxable income. 

There are a vast number of grants, loans, tax credits, and other relief offered to businesses of all sizes.

Please contact a Foster Swift attorney if you have any questions regarding specific program qualifications, or for help applying for any of the assistance offered to Michigan businesses. 

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Foster Swift's lawyers are ready to help with these urgent and novel questions related to the coronavirus. Visit our Coronavirus Task Force page for more information. If you have questions, we encourage you to contact your Foster Swift attorney or one of our coronavirus coordinators as listed below: