Covid-19 related tax relief provided to employers now could have a big impact on small businesses.
Under the new legislation all employers can take advantage of delaying employer payroll taxes, like Social Security, to give them more liquidity and operating income.
Here’s how it works: Catch-up payments for those who defer paying those taxes will require 50 percent of the deferred taxes to be paid by Jan. 1, 2021. The balance will be due by Jan. 1, 2022.
“Nobody is talking about this, and it can make a difference,” said Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce in Washington D.C.
But for those who will have loan forgiveness under the CARES Act Paycheck Protection Program or other loan forgiveness initiatives, payroll tax delays do not apply.
Other tax changes benefiting employers impacted by Covid-19 may be found on the U.S. Chamber of Commerce website at www.uschamber.com.
Employee retention credits, along with incentives to retain employees or hire back employees laid off because of Covid-19 hardships since February 15, aim to keep workers on the books.
Participation in these programs ultimately will require “…some deep soul searching by the business owner,” said Danielle Bodnar, UBCC executive director.
To better understand its provisions, the CARES Act has been rolled out in stages.
Here’s what’s been done so far, and what might be coming next.
Bradley said the CARE Act Phase I provided federal investment and infrastructure for the CDC (Centers for Disease Control and Prevention) and health care function, including free [Covid-19], regardless of an individual’s current health care coverage.
Phase 2 expanded the Family Medical Leave Act (FMLA) to cover those who become sick, are caring for sick family members, or who must remain at home to care for children due to Covid-19 closures of schools and day care centers.
“It is one of the rare times we have had a fully funded mandate. It’s 100 percent repaid,” Bradley explained.
Phase 3 deals with automatic payments of $1,200 for adults. Families with minor children will receive $500 per child. Phase 3 provides expanded unemployment benefits of $600 per week, and a 13-week extension of benefits on top of state unemployment benefits. Under the act, small business owners, sole proprietors, contract employees (form 1099 workers), gig and freelancer workers are covered. No timeline for when the UC application process opens to the new sectors covered has been set. Benefits must be applied for through the state unemployment compensation website.
Phase 3 also includes the Paycheck Protection Program (PPP) offered through the CARES Act. It is intended to recover lost income due to the coronavirus and to keep employees on the payroll.
A potential Phase 4 of the package is currently in discussion to fill gaps Phase 3 did not address, Bradley said.
He noted a possible Phase 4 rollout could include relief and financial resources to 501 C 6 non-profit organizations, like chambers of commerce and state and municipal governments who are also employers.
“We know state and local tax revenues have fallen off a cliff,” Bradley said.
Relief for companies funded through venture capital was also being explored, he said.
Bradley said government officials are keenly aware of marketplace concerns over how quickly relief money from the Paycheck Protection Program, Small Business Administration or expanded unemployment can get into the hands of those who need it.
“PPP was design in a period where we thought this [Covid-19] would be over sooner. There is no guaranteed deadline for this,” he said.
Bradley conceded there are limits to what banks can lend, and federal agencies are working to expand the number of lenders who can participate in the programs.
The Small Business Economic Injury Disaster Loan (EIDL), opens for applications to small businesses and sole proprietors on April 10.
EIDL provides $10,000 of grant relief, which means it is not paid back. Low interest EIDL loans must be repaid in two years from receipt of funds.
EIDL applications are made through the U.S. Treasury website.
Sonia Smith urges anyone on the fence about applying for an EIDL loan to do it anyway.
“If you receive a loan you have until the end of the year to decide if you want to take the funds,” she said.
Smith is an economic development specialist at the U.S. Small Business Administration in Philadelphia.
EIDL is designed to pay bills during Covid-19 – like business mortgages, or purchasing necessary supplies or equipment to keep the business at pre February 15 levels.
It is not designed to cover lost sales or income, or to fund business expansions, she said.
“Make sure to keep detailed records for how any money received [under any federal relief programs] is spent,” in case proof is requested by the government after disbursements are made, Smith said.
Bradley said employers could find lending and program resources and details about applying on the SBA and U.S. Treasury websites.
Details and updated information may be found on the U.S. Chamber of Commerce website at www.uschamber.com.
Upper Bucks Chamber of Commerce
An economic development agency for Upper Bucks County, Pennsylvania.
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