12 Credits, Deductions, Loans & Deferrals to Help Your Business Get Through This Crisis
It’s not new news that businesses are struggling to survive COVID-19, while also trying to help their employees stay afloat. It may seem that so much is out of your control. Yet, while that may be true, there are things you can control. Two of those, which you should attend to now, are maximizing your business’ liquidity and taking advantage of the new Federal and other relief options.
The following summary is intended as a starting point to help you to achieve those goals.
1. MAXIMIZE LIQUIDITY (most qualification periods expire June 30, 2020)
For employers with less than 500 employees, under SBA definition (some exceptions for aviation, accommodation and food service to determine count by location):
- Draw down any existing lines of credit.
- If you are current on your loans, talk to your banker about restructuring loans. Banks are incented to defer payments and maturities right now with no penalties to them. It appears up to 6 months of debt payment relief may be granted. The same stimulus legislation granting the CARES Act loans allows banks to obtain regulatory capital relief for modified or restructured loans on their books for borrowers affected by COVID-19 by not increasing related capital charges for these amended loans. It also grants the banks their own authority for these actions without being “second guessed” by their regulators. This capital relief to banks extends up to the end of 2020.
- Evaluate the 7(a) program. Businesses with less than 500 employees, self-employed and some non-profits are eligible. These loans will be granted between Feb. 15, 2020 and June 30, 2020 for payments to retain workers and maintain payroll or make mortgage, leases and utilities between Feb. 15, 2020 and June 30, 2020. Amount of loan is limited to lesser of 2.5x monthly payroll or $10 million. Interest rate currently set at 1.0% and 2-year maturity. Standard SBA fees are waived. Loan may be forgiven based on funds spent, in 8 weeks post origination, for payroll, mortgage interest, leases and utilities. Possible deferment of repayment of the loans for a period of at least 6 months but not to exceed a year.
- Need to compare this option to refundable payroll tax credits for wages paid if no liquidity concerns after the first two steps.
- Opportunity for exclusion from tax of forgiveness during the applicable period.
- Generally the CARES Act 7(a) loan has an exclusion from personal guaranty and security interests in collateral requirements normally found with other SBA loans.
- Applied for through your bank, many of which have SBA capability. Call us if you require assistance or need a banking relationship to execute.
- Increases caps on express loans to $1 million.
- Seek Economic Injury Disaster Loan (EIDL) from SBA Section 7(b)(2) – up to $2 million available. You can do this through the website for SBA and disaster assistance. Includes businesses with fewer than 500 employees, sole proprietors and ESOPS. For any loan made under this program before Dec. 31, 2020, no personal guarantee will be required on loans below $200,000. Allows a disaster loan to be taken out between Jan. 31, 2020 and the date on which a paycheck protection loan per Section 7(a) is available for reason other than paying payroll costs.
- Corporations may request (Form 1138) an extension of time to pay 2019 income tax due on July 15, 2020 to the extent a 2020 NOL carryback is anticipated that will offset such 2019 income tax due. The payment extension runs through the extended due date of the upcoming NOL year.
For employers with 500 or more employees, under SBA definition:
- Draw down any existing lines of credit.
- Discuss restructuring debt with your bank.
- $500 billion available for liquidity support directly from the Federal Reserve.
- Alternative funding sources are not available
- Primarily U.S.-based operations
- Government will take a security interest in the business assets
- 5-year loan max and not forgivable
- Includes requirements to retain 90% of workforce at full compensation and benefits until Sept. 30, 2020
- Restore at least 90 % of workforce that existed on Feb. 1, 2020, and restore all compensation and benefits to workers within 4 months of the end of HHS Administration’s public health emergency declared Jan. 31, 2020
- Other strings attached
- No stock buybacks and no dividends while the loans are outstanding
- No outsourcing job during and 2 years after repayment
- Limits on collective bargaining
- No blocking of union organizing while loan is outstanding
- Corporations may request (Form 1138) an extension of time to pay 2019 income tax due on July 15, 2020, to the extent a 2020 NOL carryback is anticipated that will offset such 2019 income tax due. The payment extension runs through the extended due date of the upcoming NOL year.
2. Employee Retention Tax Credits
- Refundable payroll tax credit for 50% of wages paid for wages paid from March 13, 2020 to Dec. 31, 2020, limited to $10,000 per employee, including the costs of health insurance for employees not providing services during shutdown.
- Payroll tax credit goes against OASDI (6.2%) withholdings but is refundable.
- Qualified employers
- Ordered by government authority to suspend or reduce operations due to COVID-19
- 50% reduction in gross receipts in a calendar quarter, as compared to the same quarter in 2019
- Special rules for employers under 100 employees – Wages are 100% refundable for the quarter regardless of whether the employees are working (still must be a “qualified employer” though)
3. Paid Medical Leave Credits
The Families First Act (FFA), under prior relief measures, was expanded to private for-profit and nonprofit employers employing 1 to 499 employees and to most government employers without regard to size.
Employers with less than 25 employees may be exempt from the job restoration aspect of the law. (Special rules may apply to employers with less than 50 employees, subject to final guidance being issued.) The FFA includes amounts due after April 1, 2020 and before Jan. 1, 2021 and is split into two pieces – paid leave and emergency family leave.
It is the emergency family leave law that provides up to 12 weeks of caregiver leave due to school or day care closures. The first 10 days are unpaid unless the employee substitutes available PTO or emergency payed sick leave.
Up to 80 hours of paid leave (10 working days for FT) for employees who are:
- Exhibiting symptoms of COVID-19 and taking time to seek diagnosis;
- Currently diagnosed as having COVID-19;
- A health care provider advises a self-quarantine;
- A federal, state or local quarantine or isolation order is issued; or
- Care is necessary for another individual who is in quarantine or for a child under the age of 18 affected by a school or daycare closure on account of COVID-19, including adopted and step-children, and children for whom the individual is the legal guardian.
Emergency Medical Leave provides an additional 10 weeks of paid leave under the act for an employee who:
- Worked for the employer for at least 30 days; and
- Is unable to work or telework due to a need for leave to care for a son or daughter under age 18, as a result of a closure of the child’s school or day care facility, or the child’s care provider is unavailable due to a coronavirus-declared emergency.
An individual is entitled to be paid the greater of his/her regular rate of pay (subject to caps described below), the federal minimum wage or the state minimum wage.
Type of Leave
Reasons for Leave
Amount of Pay
(greater of regular rate of pay, federal minimum wage or state minimum wage)
Emergency Paid Sick Leave (EPSL)
- Individual subject to federal/state quarantine or isolation order
- Individual advised by health care provider to self-quarantine
- Individual experiencing COVID-19 symptoms or seeking diagnosis
- Individual diagnosed with COVID-19
100% of the greater of the amounts above, subject to a maximum $511 per day or
$5,110 in the aggregate
- Caregiver leave due to federal/state quarantine
- Care for a child whose school or place of care is closed
- Care for individual with COVID-19
39% of the greater of the amounts above, subject to a maximum of $200 per day or
$2,000 in the aggregate
Emergency Family & Medical Leave (EFML)
Individual is unable to work or telework due to a need for leave to care for a son or daughter under age 18, as a result of a closure of the child’s school or day care facility or the child’s care provider is unavailable, due to a coronavirus-declared emergency.
Maximum of 10 weeks
- First 10 days: Unpaid (individual can choose to use available PTO or EPSL)
- For the next 10 weeks: 2/3 of the greater of the amounts above, subject to a maximum $200/per day or $10,000 in the aggregate
Combined EPSL & EFML
Individual is unable to work or telework due to a need for leave to care for a son or daughter under age 18, as a result of a closure of the child’s school or day care facility or the child care’s provider is unavailable, due to a coronavirus-declared emergency.
Maximum of $200/per day or
$12,000 in the aggregate
Employers with less than 500 employees (as determined under FMLA) may receive a dollar-for-dollar credit for all paid leave outlined above. This may be offset by federal tax withholding and employer/employee FICA withholding.
4. FICA Tax Delayed Payments
Employer portion of the OASDI (6.2%) may be deferred from March 27, 2020 to Dec. 31, 2020 and paid 50% by end of 2021 and 50% by end of 2022. This does not apply to Medicare taxes.
5. Delay in payment of taxes
Businesses (and individuals) may delay tax balances due and estimated payments due on April 15, 2020 to July 15, 2020. (Estimates due June 15, 2020 are not deferred to July 15, 2020.)
6. Retailer, restaurant and other leasehold improvements depreciation clarifications
Property allocated to these categories did not qualify for a 15-year recovery period and bonus depreciation until the CARES Act corrected the TCJA drafting error. If you were subject to the drafting error in 2018 and 2019, IRS guidance will dictate whether amended returns or accounting method changes are to be used on account of prior tax filings under the old rules.
7. Defined Benefit Required Contributions
All defined benefit plans subject to minimum funding may delay 2020 contributions until 2021.
8. Employer paid student loans
Any employer who maintains a qualifying student loan repayment program may exclude up to $5,250 from the employee’s income for 2020.
9. Corporate Alternative Minimum Tax (AMT)
Although repealed after 2017, corporations are allowed a carryover to current years to offset regular tax. Although the issues are unique to each company based on year ends and tax situations, you may be able to offset all AMT credits rolling into 2018 and claim immediate refunds. Check with your tax advisor for specifics.
10. Charitable Contribution limit for corporations
This was increased from the typical 10% of taxable income to 25% of taxable income but only for contributions during 2020.
11. Increase in interest deductibility
The business interest limitation equal to 30% of adjusted taxable income is increased to 50% of adjusted taxable income, and this may result in a reduction of tax for 2019 and 2020. This would allow for amended 2019 returns, if filed, but will result in less tax for those tax returns still to be filed for 2019.
12. Net Operating Loss (NOL) Carrybacks
If you have a corporate net operating loss in 2018 or 2019, you can now file a carryback claim for up to 5 years and receive a refund of federal taxes paid during that time. The rule applies for 2020, as well, so you may want to plan to finish 2020 your tax return as soon as possible. (Consider planning to file your return in the first few weeks after the close of the tax year, then immediately file Form 1139, then later file superseding return for loss year to “true up” NOL.) Depending on timing of 2019 loss return, there is a possibility for filing amended return for 2018 return with NOL, or Form 1139 Carryback Form for 2019 NOL.
How you CAN help your employees
- Notify them to initiate a change of address form with the IRS if they have moved since they filed their 2018 tax returns. This may not be required if the correct address is reflected on their already filed 2019 returns. The tax return address or bank account information will be utilized for the $1,200 ($2,400 if married plus some for children) payments. Phase outs apply for higher earners.
- Unemployment insurance has been expanded with the removal of the 1-week waiting period. States are encouraged to implement short-term compensation-type (reduce hours or furlough) programs. Federal government is subsidizing states with reduced hour programs. We expect state funds to be depleted during this process, and this will obviously impact future rates.
- Communicate to your employees:
- Student loan payments are deferred through Sept. 30, 2020
- Federally insured mortgages have a 60-day period to avoid foreclosure
- Modify retirement plans to allow for increased loans (up to $100,000) or hardship withdrawals. Hardship withdrawals are available with no penalties and may be eligible to avoid tax altogether if repaid in 3 years.
- Modify health insurance plan to include:
- Reimbursement of coronavirus testing
- Implementation of telemedicine changes
- Emergency leave modifications
- Spending account plans to allow for the reimbursement of over-the-counter treatments
To learn more, visit our COVID-19 Resource Center, which is updated daily with webinars, articles, legislative updates, links and tools that you need to navigate the COVID-19 crisis.
This is current as of April 2, 2020 but may have changed by the time you are reading this.