We want to emphasize that any analysis of the pending $2 trillion “Coronavirus Aid, Relief and Economic Security Act” (CARES Act) that you may read – whether provided by DDIFO or any other organization is NOT YET FINAL, as the legislation is still pending in Congress. That said, we have a preliminary summary from the Coalition of Franchisee Associations (CFA) that highlights some of the more significant provisions of the bill that we’d like to provide you with for the time being. We will update this summary with more details and any changes after the US House takes final action on the CARES Act. The Senate approved version provides:
Small Business Forgiveness Loan
♦ For businesses with less than 500 employees per physical location, they can get a loan which is the lesser of 2.5 times payroll or $10 million, whichever is less
♦ Loans must be used for payroll, health care, salaries, rent, utilities and other debt
♦ The government will forgive all loans (limits below) unless they are used for unauthorized reasons
♦ No personal guarantees or collateral is needed
♦ Applies for the period 2/15-6/30
♦ The amount of forgiveness shall be reduced by:
- average # of FTE’s per month employed during covered period DIVIDED BY average # of FTEs employed during the period beginning 1/1/20-2/29/20
- any reduction in salary or wages of any employee in excess of 25% during the most recent full quarter during which the employee was employed before the covered period
♦ Full forgiveness for re-hires
- No forgiveness limits if the employer hires back the employees no later than 6/30/20
Employee Retention Tax Credit
♦ Provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees during the COVID-19 crisis.
♦ Available to employers whose (1) operations were fully or partially suspended, due to a COVID-19-related shut-down order, or (2) gross receipts declined by more than 50 percent when compared to the same quarter in the prior year.
♦ Credit is based on qualified wages paid to the employee.
- Provided for first $10,000 compensation, including health benefits, paid to eligible employee.
- Provided for wages paid or incurred from March 13, 2020 through December 31, 2020.
Delay of Payroll Taxes
♦ Allows employers to defer payment of the employer share of the Social Security tax they otherwise are responsible for paying
♦ Requires that the deferred employment tax be paid over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022.
Modifications for net operating losses
♦ Net operating losses (NOL) arising in a tax year beginning in 2018, 2019, or 2020 can be carried back five years.
♦ Temporarily removes the taxable income limitation to allow an NOL to fully offset income.
♦ Companies can utilize losses and amend prior year returns
Modification of credit for prior year minimum tax liability of corporations
♦ Permits companies to claim a refund now and obtain additional cash flow during the COVID-19 emergency.
♦ Accelerates the ability of companies to recover AMT credits
Modification of limitation on business interest
♦ Temporarily increases the interest expense that businesses are allowed to deduct on their 2019 & 2020 tax returns, increasing the limitation from 30% to 50% of taxable income (with adjustments).
♦ Returns depreciation to 15-years with 100% bonus expensing for costs associated with improving facilities as the country recovers from the COVID-19 emergency.