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New CARES Act is Valuable Toolkit for Small Business Owners

Photo of author, John Binz, JD.
John Binz, JD
Financial Strategist and Chief Compliance Officer

Some have called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) a stimulus package while others call it an emergency fund; but it is really a toolkit for business owners to keep the lights on and care for their employees. By unanimously passing this bill, the legislature has attacked the coronavirus pandemic on three fronts. First, they are making resources available to business owners to help stay viable. Next, they empower individuals with economic relief. Finally, they bolster the healthcare industry and ensure access for those in need. While this is only one bill in what will surely be a mountain of new legislation, the CARES Act is a massive commitment by the United States legislature to bolster the economy and the health of its citizens.

Tools for your Businesses:

  • Paycheck Protection Program (§1102)
    The Paycheck Protection Program within the CARES Act seeks to give a massive boost to business owners’ ability to continue paying their employees. With this program, small businesses with fewer than 500 employees may qualify for a loan of up to $10,000,000. The exact calculation for the loan amount is based on a multiple of your average payroll costs up to the $10,000,000 limit. The best part is that as long as the funds are used for payroll, mortgage interest, rent, and utilities and you do not reduce your workforce, up to 100% of the loan can be forgiven.
  • Payroll Tax Deferral (§2302)
    Social security payroll tax payments can be delayed and paid over time. Rather than paying in full, businesses can take care of current liquidity needs by keeping the employer side social security tax payments now and paying 50% by December 31, 2021, and the remainder by December 31, 2022.
  • Employee Retention Credit (§2301)
    If your company is experiencing a significant decrease in gross receipts compared to last year, and you have maintained your workforce even though they are not working, a 50% refundable tax credit of up to $10,000 in payroll per retained employee may be available.
  • Net Operating Losses (§2303)
    In another move to increase liquidity, the CARES Act has expanded the eligible deduction for net operating losses. The previous limit of 80% has been suspended, and businesses can now use offset 100% of their income taxes. Furthermore, the CARES Act provides that losses incurred in 2018, 2019, or 2020 may be carried back five years.
  • Net Interest Deduction (§2306)
    Previously, a business’s interest paid deduction was capped at 30% of earnings before interest, taxes, depreciation, and amortization. With the passage of the CARES Act, that limit is now 50% for tax years 2019 and 2020.

Tools for your Employees:

  • Direct Payments (§2201)
    Taking the form of a fully refundable tax credit, the CARES Act will extend up to $1,200 to each taxpayer making less that $75,000 annually. Those that make more than $75,000 but less than $100,000 are eligible for a smaller credit, and anyone with a child will be granted a flat $500 credit per child.
  • Extended Unemployment (§§ 2101-2116)
    While the primary goal of the CARES Act is to keep people employed, it also makes several changes to extend unemployment benefits to those who have lost their jobs. To start, the CARES Act grants an additional $600 on top of whatever is provided by the state. Eligibility has also been expanded. In the past, part-time, gig economy, and self-employed workers have not been eligible to receive unemployment benefits. However, the CARES Act now extends benefits to those groups.
  • Use of Retirement Funds (§2202)
    To boost cash flow to individuals affected by Covid-19, the 10% early withdrawal penalty has been waived for retirement accounts. Individuals who choose to take money from their qualified retirement accounts will have three years to either pay the taxes associated with the withdrawal or replace the funds in the account.
  • 401(k) Loans (§2202)
    If taking a loan from your 401(k) seems like a better option, limit has been increased from $50,000 to $100,000 for those affected by Covid-19.
  • Student Loan Repayment (§§ 3513 & 2206)
    The Cares Act is handling student loan payments in two big ways. First, all payments to federal student loans have been deferred through September. This should help give plenty of people some additional cash. On top of that, the CARES Act modifies the rule allowing employers to pay a tax-free $5,250 per employee for education assistance, to extend to loan repayment.

Tools for your Health:

  • Testing and Vaccinations (§§ 3201-3203)
    While the economic effect of Covid-19 is far-reaching, it is still primarily a public health issue. As such, the CARES Act ensures proactive testing is available and affordable. Thinking optimistically, the Act also ensures the same for any vaccine when it becomes available.
  • Telehealth (§§ 3701-3706)
    Now more than ever, the use of technology is bringing people together. The CARES Act recognizes this and ensures that everyone can use technology to stay connected to their health care providers without the risk of losing coverage or excessive, uncovered medical bills.

By now, you have heard the phrase “we’re all in this together” about a million times. Without saying that tried phrase once again, Congress has actually shown it by passing the CARES Act. This is by no means an exhaustive list of all the provisions found in the new CARES Act. However, many of our clients will be affected by its provisions. The full text of the act can be found here. If you have any questions or would like to discuss how this might affect your situation, please contact an advisor at McKinley Carter Wealth Services.

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