Dear Clients and Friends:
We are diligently working to keep you apprised of the new laws applicable to small businesses and individuals. Below is a summary of the new laws passed over the last week allowing for significant assistance to almost all small businesses. You will find the rules are relaxed significantly, including no personal guarantees, no requirement that you have tried to find funds elsewhere, and a quick turnaround time for funding that allows you to rehire employees. Also, some portion of these loans will be forgiven when used for the right purposes, mainly payroll. We will continue to advise you on the implementation of these laws in the weeks and months ahead. Call or email us with any questions.
(1) Coronavirus Aid, Relief, and Economic Security Act (“CARES”)
- Financial assistance and loans to individual taxpayers, businesses, and entire industries affected by COVID19, and expansion of unemployment benefits. We focus on small businesses with this summary.
- Adds $349 billion in additional funds for SBA loans under Section 7(a) of the program and expands its scope.
- Relaxes loan eligibility criteria, increases loan limits, and expands allowable uses of the loan proceeds.
- Grants to entrepreneurs to help with small businesses (especially minority and women-owned).
- Expands access to SBA Economic Injury Development Loans (“EIDL”) through December 31, 2020 for small businesses, private nonprofits, and individuals operating as sole proprietors or independent contractors as of January 31, 2020. There are no personal guarantee requirements on all loans up to $200,000, no requirement of having to be in business for a year, and no requirement that you can obtain credit elsewhere.
- EIDL Applicants can receive as grants an advance up to $10,000 within three days of receipt of the application to be used for COVID-19 related paid sick leave, payroll to retain employees, pay costs related to interrupted supply chains, rent or mortgage payments, and repay obligations related to revenue losses.
- Grants do not have to be repaid.
- EIDL received $10 billion from CARES.
- Provides bankruptcy protection to debtors.
Loans and Relief for Small Businesses
- Expands loan eligibility through June 30, 2020, through its “Paycheck Protection Program”:
- For any business under 500 employees (or the number of employees established by the SBA)
- Individuals operating as sole proprietorships, self-employed, or Independent Contractors, and
- Business in accommodation and food services industry under 500 employees in one location
Businesses that borrow must certify:
- The current economic uncertainty makes the loan necessary to support ongoing operations; and
- The loan proceeds will be used to retain workers and maintain payroll or make mortgage, rent, and utility payments
- Businesses can use the loan for payroll, insurance premiums, continuing to pay healthcare benefits during paid sick/medical/family leave, employee salaries, commissions, utilities, rent, mortgage payments, and interest on debt obligations incurred before February 15, 2020.
- Business no longer have to “be able to obtain credit elsewhere.”
Under the Paycheck Protection Program, Businesses can Borrow the lesser of:
- $10,000,000, or
- 2. 2.5 times the business’ average monthly payroll costs in the one-year period before closing of the loan.
-The loans will have a maximum interest rate of 4% including all lender fees.
-Collateral and Personal Guarantees are Waived. -Loans are 100% guaranteed by the SBA.
-Lenders must defer payments of principal, interest, and fees on the loans for six or a year (TBD per SBA).
-Loan Forgiveness is available for any part of the loan used for payroll (excluding compensation for any employee making over $100,000 annually), rent, utilities, and mortgage interest for eight weeks from the loan date. It will be considered “canceled debt” and will not be included in the business gross income for tax purposes.
-The Loans require the businesses to retain employees at existing salaries or risk reduction in the amount of loan forgiveness.
Financial Assistance to Individual Taxpayers
Tax Rebates expanded Unemployment Insurance Benefits and loosening to laws pertaining to retirement accounts, plans, and charitable contributions
- CARES provides a 2020 tax credit to eligible individual taxpayers of $1,200 for individuals or $2,400 for individuals filing jointly, plus an additional $500 for each qualifying child of the taxpayer.
- Anyone that would have been eligible for this credit in the 2019 tax year (or 2018 if no return was filed for 2019) is to be treated as having paid a tax in the amount of the credit, and will be entitled to a refund.
- The total amount to be received by a taxpayer will be phased out based on income thresholds, zeroing out for taxpayers making more than $99,000 (or $198,000 in the case of a joint return).
Unemployment Insurance Benefits
- Unemployment Insurance benefits to individuals who are not regularly eligible for unemployment benefits, who are unemployed or unable to work due to COVID-19.
- Provides eligible individuals an additional $600 per week (above California’s regular $450 per week) for up to four months.
Loosening of Rules Concerning Retirement Funds, Plans, and Accounts
- Temporarily removes the 10% additional tax normally imposed on early withdrawals from retirement funds for qualified “coronavirus-related distributions,” which are defined as any distributions, up to a maximum of $100,000 per taxable year, from an eligible retirement plan by an individual:
- who has been diagnosed with SARS-CoV-2 or COVID-19,
- whose spouse has been diagnosed with SARS-CoV-2 or COVID-19, or
- who is suffering adverse financial or employment consequences due to SARS-CoV-2 or COVID-19.
- Loans made from such retirement accounts during the 180-day period following the enactment of the bill will not be treated as distributions so long as they do not exceed $100,000.
- Amends IRC Section 401(a)(9) to provide for a temporary waiver of requirements pertaining to minimum distributions under that section for certain defined contribution plans.
(2) Small Employer Exemption (under 50 employees)
- Employers with fewer than 50 employees may be able to request an exemption from the U.S. Secretary of Labor from the requirement of providing paid time off (PTO) under Emergency FMLA (where employees can take time off due to children whose schools are out or childcare provider is unavailable) if providing this PTO would “jeopardize the viability of the business as a going concern” (aka make it go bankrupt). The employers would have to affirmatively elect this small business exemption and must document why they qualify for the exemption. Additional Guidance is due from the DOL.
(3) Emergency Paid Sick Leave Act (“EPSLA”)
- Effective April 1, 2020, employees may take up to two full weeks (10 work days) of EPSL if they are unable to work due to any of the following:
- federal, state or local public official orders the employee to quarantine or isolate,
- employee was advised by a health care provider to self-quarantine or isolate due to COVID-19, or employee is experiencing COVID-19 symptoms and seeking medical diagnosis
- The employee will be paid at his/her regular rate. The employer would receive a tax credit against payroll social security taxes for every dollar paid up to $511 per employee per day (or $5,110 in total) under EPSLA.
- Employees may take up to two additional full weeks as PHEL (paid under the EPSL) if they are unable to work due to any of the following
(1) employee is caring for a person subject to quarantine or isolation order or who has been advised by a healthcare provider to self-quarantine,
(2) employee is caring for a child whose school or daycare is closed due to COVID-19, or
(3) employee is experiencing any other substantially similar condition specified by the Secretary of Health & Human Services, the Secretary of Treasury or Secretary of Labor.
- The employee will receive from employer the lesser of 2/3 of their regular rate of pay or $200 per employee per day under EPSL (or $2,000 in total). Thereafter, employees can take an additional 10 weeks of paid Emergency FMLA at $200 per day or $10,000 in total. The employer would receive a tax credit against payroll social security taxes for every dollar paid.
- Full Time Employees: The employer would keep paying the Full-Time employee his/her regular wages for 80 hours of paid sick leave.
- Part Time Employees: Part Time employees receive wages equal to the number of hours they worked on average over a two-week period over the last six months or the number of hours the employee was expected to work upon hiring.
- Please note that employers may not require their employees to use other accrued leave (e.g. vacation or sick time/PTO) before the employee can take the Emergency Paid Sick Leave (“EPSL”).
- Independent Contractors are not entitled to this benefit for now. This may change.
- Employees can take both EPSLA and PHEL of they must take care for a child when the child’s school or place of care has closed
(4) Emergency FMLA – Public Health Emergency Leave (“PHEL”)
- PHEL expands the FMLA to provide up to 12 weeks of FMLA-related leave to employees unable to work due to:
(1) caring for a minor child whose school or childcare facility is closed due to COVID-19, or
(2) if the usual childcare provider is unavailable.
- Reimbursed as a tax credit
- If an employee (who has already worked for 30 days or more at the company prior to the day the employee’s leave is to begin) is unable to work (either in person or remote).
- The employer must allow the employee to take Emergency FMLA/PHEL leave (the first 10 days of which are unpaid and the following 10 weeks are paid at the lower or 2/3 of the employee’s regular rate of pay or $200 per employee per day) (50 workdays; $10,000 in total). The 10 days under EPSLA can cover the first 10 workdays of PHEL which are not paid (unless the employee uses paid leave available under an employer-specific benefit such as accrued vacation, PTO, or sick leave policy).
- After the first 10 workdays (two weeks) of EPSLA have elapsed (and the employee is paid at 100% of wages), the employee can receive 2/3 of regular pay for the hours he/she would have been scheduled to work in the following 10 weeks under PHEL.
- Healthcare Providers, Emergency Responders, and Small employers (with less than 50 employees) may be exempted from providing leave to employees who request this leave if such action would jeopardize the business.
- Employers with less than 25 employees are not obligated to return any employee who has taken Emergency FMLA leave to the same or equal position upon return to work if the position no longer exists due to the economic downturn or other situation caused by a public health emergency during this period.
- Employers with 25 or more employees would still be obligated to return any employee to the same or equal position upon return to work similar to traditional FMLA.
(5) California-Specific Law
- California law already provides full and part-time workers at least three days of paid sick leave annually.
- Los Angeles County Law provides six paid sick leave days annually
- California Family Rights Act provides additional leave rights to California employees
(6) Emergency Funding
- We recommend that you consider the Los Angeles Disaster Assistance Mico-Loans for Los Angeles County Small Businesses economically impacted by Covid-19. These are interest-free up to six months or one year ($5,000 to $50,000). See: https://ewddlacity.com/index.php/microloan-program
- In addition, please consider California’s Disaster Assistance: https://www.caloes.ca.gov/cal-oesdivisions/recovery/disaster-recovery-assistance-for-individuals- businesses-private-non-profits-farmersranchers
- Finally, please consider the federal government’s SBA Disaster Assistance loans which are now at a very low rate (3.75%) here: https://disasterloan.sba.gov/ela
- In response to coronavirus, the SBA provides up to two million dollars in low-Interest loans for working capital to small businesses suffering “substantial economic injury” unable to meet obligations and pay ordinary and necessary operating expenses, fixed debts, accounts payable and other bills because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere, and 2.75% for non-profit organizations, with repayment terms up to 30 years. Businesses with credit available elsewhere are normally not eligible. Now, with CARES, these businesses are eligible. Once a declaration is made by SBA for designated areas (listed at sba.gov/disaster-assistance/coronavirus-covid-19), application info is online at SBA.gov/disaster.