Federal & State Relief as of 3/27/2020
March 28, 2020
This is a general summary of the bills. We will monitor information and continue to issue more detailed summaries of various provisions in the days and weeks to come.
We are available to discuss any and all of these options with you at any time, answer your questions, and to assist in the preparation of loan applications if necessary. Please contact us. Office 317-843-1040 or www.allmanjohnson.com/contact/
FEDERAL AND STATE RELIEF
CARES BILL - New Federal Legislation Signed into Law March 27, 2020
Individual Tax Provisions
- Individual tax credit/rebate. All US residents who are not dependents of another and have a valid Social Security number, are eligible for a $1,200 rebate ($2,400 for married couples). There is an additional rebate of $500 per child. The rebate phases out beginning at AGI of $75,000 for single taxpayers, $150,000 for married taxpayers, and $112,500 for head of household taxpayers. Payments will be based on 2019 tax returns if filed, or 2018 tax returns if 2019 is not filed yet. (§2201)
- Special rules for retirement accounts. The 10% early withdrawal penalty is waived for distributions on or after 1/1/2020 for coronavirus-related purposes. The distributions will be taxed over a 3-year period and the amount can be recontributed to an eligible retirement plan during that time without regard to the contribution limits at that time. Also, loan limits from certain retirement plans are increased for coronavirus-related relief. (§2202)
- RMD rules temporarily waived. The required minimum distribution (RMD) rules for certain defined-benefit contribution plans and IRAs are waived for the 2020 calendar year. (§2203)
- Above-the-line charitable deduction. For 2020, taxpayers are entitled to a deduction of up to $300 for cash contributions to churches and charitable organizations, but only if they take the standard deduction. (§2204)
- Increased income limitation on charitable contributions. Currently, charitable deductions are limited to 50% of an individual’s AGI. This limit can be suspended for certain cash contributions made in 2020 if an election is made. For corporations making certain cash contributions in 2020, the 10% limit generally is increased to 25%. (§2205)
Funding for Small- and Medium-Size Businesses
- Small business loans. The bill provides two lending programs for small and medium-size businesses to obtain disaster relief and allows both to be used though not for the same purpose. There is the Paycheck Protection Program (PPP), which is an expansion of the existing 7(a) program, and the Economic Injury Disaster Loan (EIDL) program.
- PPP. This is the lending program that allows for some loan forgiveness. Details:
- Applies to businesses with 500 or fewer employees, and certain affiliation rules apply to combine businesses with common ownership, though they are waived hotels and restaurant franchises. The borrower must have been in operation on 2/15/2020.
- Loans will be made by banks and commercial lenders authorized to make SBA loans, and the application period ends 6/30/2020.
- The amount of the loan is limited to the lesser of (i) $10M or (ii) the borrower’s average total monthly “payroll costs” for the 1-year period ending on the date the loan is made multiplied by 2.5, plus any refinanced loan under the EIDL program obtained after 1/31/2020.
- Payroll costs generally include employee salaries and tips, retirement benefits, severance payments, state and local taxes on employee compensation, but does not include compensation paid to employees and independent contractors in excess of $100,000/year, and amounts paid to persons who reside outside the US.
- The loan proceeds may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before 2/15/2020.
- Loan terms:
- No collateral required.
- Loan cannot be obtained if taxpayer also receives the employee retention tax credit (see summary above).
- Maximum interest rate of 4%.
- Maximum term of 10 years.
- No interest or principal payments are required for a period between 6 months and 1 year (though interest will accrue from the day the loan is made).
- Prepayment penalties are prohibited.
- Borrower may apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the 8 weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower (as it otherwise would have been).
- EIDL Program. This program currently allows for emergency loans of up to $2M to assist companies affected by COVID-19. The bill would waive the requirement for personal guarantees on loans under $200K, it would waive the requirement that the borrower not be able to obtain credit elsewhere, and provide emergency grants of up to $10K within 3 days of the borrower filing an application, though the amount of the grant would reduce any loan forgiveness under the PPP. The bill also would streamline the loan application process.
Other Business Tax Provisions
- Employee retention credit for employer’s subject to closure due to COVID-19. Refundable payroll tax credit for 50% of qualified wages paid from 3/13/2020 through 12/31/2020 for employers whose (i) operations were fully or partially suspended due to a COVID-19 related shut-down order, or (ii) gross receipts declined by more than 50% when compared to the same quarter in the prior year. The amount of qualified wages depends on whether the employer has more than 100 FTEs; the amount is larger for employers with 100 or fewer employees. The credit is capped at the first $10K of compensation (including health benefits) paid to employees. (§2301)
- Delay of payment of employer payroll taxes. Employers and self-employed individuals can defer payment of the employer’s share (6.2%) of the Social Security payroll tax, but the deferred amount must be repaid in equal installments by 12/31/2021 and 12/31/2022. (§2302)
- Net operating losses. This provision allows for NOLs arising in tax years 2018, 2019, or 2020 to be carried back 5 years, which is favorable because it allows carrybacks to years when the top corporate tax rate was 35%.
- Modification of §461(l) excess business loss rules. The provision modifies various aspects of the excess business loss (EBL) limitation applicable to pass-through businesses and sole proprietors, so they can utilize losses sooner. Specifically, it repeals the EBL limitation for tax years 2018 through 2020. (§2304)
- Refunds for AMT credits. Since the repeal of the corporate AMT, carryover AMT credits currently are refundable over several years, with the balance fully refundable in 2021.
- Temporary modification of §163(j) interest deduction limitation. This provision increases taxpayer’s permitted interest deduction.
- Temporary exception from excise tax for alcohol used to produce hand sanitizer. The provision waives in calendar year 2020 the federal excise tax on any distilled spirits used for or contained in certain FDA-compliant hand sanitizers. (§2308)
SBA Disaster Assistance Loan – DUE TO TREMENDOUS VOLUME THE WEBSITE IS EXPERIENCING TECHNICAL DIFFICULTIES
- The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19).
- The application process for Economic Injury Disaster Loan assistance is available on the SBA website: SBA Disaster Page.
- SBA’s Economic Injury Disaster Loans offer up to $2 million in assistance per small business and can provide vital economic support to small businesses to help overcome the temporary loss of revenue they are experiencing.
- These loans may be used to pay fixed debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact. The interest rate is 3.75% for small businesses without credit available elsewhere; businesses with credit available elsewhere are not eligible. The interest rate for non-profits is 2.75%.
- SBA offers loans with long-term repayments in order to keep payments affordable, up to a maximum of 30 years. Terms are determined on a case-by-case basis, based upon each borrower’s ability to repay.
SBA Express Pilot Loan Program
The Express Bridge loan program allows SBA Express lenders to provide expedited financing to small businesses located in declared disaster areas. Express Bridge loans are intended to be interim loans. Businesses use these funds for disaster-related purposes while they apply for and await long-term financing.
The Express Bridge program follows the policies and procedures in place for the SBA Express program, with the following key points.
Maximum loan amount $25,000
SBA guarantee % 50%
Maximum maturity 7 years
Program expiration date September 30, 2020
Only Banks and Lenders that were already participating in the SBA Express program at the time of the disaster can issue Express Bridge loans. These Banks and Lenders may issue Express Bridge loans only to eligible small businesses that had an existing banking relationship with the lender at the time of the disaster.
Lenders can issue Express Bridge loans up to six months after the disaster declaration. Lenders may require a borrower to pay down or pay off the Express Bridge loan if the borrower is approved for long-term disaster financing that may be used to reimburse the Express Bridge loan.
The underwriting process
The SBA has simplified the underwriting process for the Express Bridge program. When underwriting an Express Bridge loan, lenders have to consider only the following:
- A minimum acceptable credit score of 140 for the applicant issued by E-Tran upon submission of the loan application for screening
- A personal credit score for each guarantor
- Lenders must obtain a signed IRS Form 4506-T and an IRS tax transcript. For businesses in operation prior to the disaster but not long enough to have been required to file a tax return, lenders must provide an alternative to verify existence of the business.
What businesses are eligible?
To be eligible for an Express Bridge loan, a small business must be located, at the time of the disaster, in a county that’s been declared as a disaster area, or any contiguous county. The loan must be used to support the survival and/or reopening of the small business within the affected county.
Read the program guide for complete details about the Express Bridge loan program.
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