New law offers significant grants, loans, tax breaks for employers
By John Schulze, ABC of Wisconsin Director of Legal and Government Relations
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, commonly referred to as Phase 3, includes significant grants, loans and tax breaks to employers, enhanced unemployment benefits, and direct payments to Americans.
Please note employers have a choice of either the special Small Business Administration (SBA) loans OR tax credits for keeping idled workers on their payrolls during the coronavirus pandemic.
Here is an overview of what is available through the CARES Act:
- Up to $600 per week in unemployment benefits in addition to the $370 a week max that Wisconsin provides through July 31, 2020 (approximately four months).
- Expands eligibility to self-employed, independent contractors, and other “gig workers,” and those who have already exhausted state and federal unemployment benefits.
- Each American making less than $75,000 annually ($150,000 for joint filers, or $112,400 for head of household) can receive $1,200 and $500 per child.
- The amount will be phased out for earners above those thresholds, being completely phased out for single filers earning more than $99,000, head of household filers with one child making more than $146,500, and joint filers with no children making more than $198,000.
$350 billion in loans for small businesses (those with 500 or fewer employees), that can be forgiven through a process that incentivizes employee retention.
- SBA loan eligibility will be greatly expanded to allow businesses to borrow money for a variety of reasons, including payroll costs, continuation of health care benefits, employee compensation for those making less than $100,000, interest mortgage obligation, rent, utilities, and interest on debt incurred before the crisis.
- SBA raises the maximum amount of these loans by 2.5 times the average total monthly payroll costs, up to $10 million, and waives the credit available elsewhere, personal guaranty, and collateral requirements.
- The interest rate may not exceed 4%.
- Up to eight weeks of the loan could be forgiven if used to pay rent, payroll costs for workers making less than $100,000, interest on mortgage, and utility payments.
- Borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
- An employer would get a refund for half of what they spent on wages, up to $5,000 per worker. To qualify, businesses must prove they took a 50 percent loss compared to the same quarter in years past due to COVID-19.
- Employers whose operations are fully or partially suspended due to COVID-19 will receive a credit against applicable employment taxes for 50% of the qualified wages, not to exceed 10,000 per calendar quarters.
- Employer can defer paying their share of applicable employment taxes until Dec. 31, 2020. Half of the deferred amount would be due Dec. 31, 2021, and the other half due Dec. 31, 2022.
- Employers can carry back a net operating loss for five years. Current limits on pass-through business losses also paused.
- Retailers can deduct 100% of the cost of a remodeling project in the year the project occurred.
- Limits on interest-expense deductions have been increased.
- A COVID-19-related retirement plan distribution between Jan. 1, 2020 and Dec. 31, 2020 will not be subject to the traditional 10% tax penalty so long as the amount does not exceed $100,000. Allowable disbursements include when a spouse or dependent is diagnosed with COVID-19; or when an individual experiences adverse financial consequence as a result of being quarantined, furloughed, laid off, or reduced hours. Disbursements from both traditional eligible employer-sponsored retirement plans and IRAs may be excluded from gross income. Any amount withdrawn can be repaid within three years without regard to that year’s cap.
- Rather than itemizing, taxpayers can take an above-the-line tax deduction for charitable contributions of up to $300 for the tax year beginning 2020.
- Through Dec. 31, 2020, employers may repay employee’s student loans up to $5,250 tax free.
- Prohibits foreclosure on all federally backed mortgage loans from March 18, 2020 to May 17, 2020. Provides up to 180 days of forbearance for borrowers of federally backed mortgage loans who have experienced financial hardship due to COVID-19. Includes multifamily so long as borrower did not evict or charge late fees for the duration of the forbearance.
- Landlords are prohibited from initiating an eviction or charging fees or penalties for 120 days for nonpayment of rent when the landlord’s mortgage is federally backed.
- Owners must contact their mortgage servicer directly to request forbearance.
Other Provisions of Note
- Payments to Department of Education student loans are suspended for six months.
- Allows Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs) to be used to purchase over-the-counter medicine.
- Federal contractors who cannot perform work at their duty-station or telework because of the nature of their jobs due to COVID-19 continue to get paid.
- Funding for small businesses to educate their employers on federal resources during the crisis, hazards of COVID-19, and best social distancing practices.