Small business tax resources for coronavirus

The Treasury Department announced COVID-19 tax deadline guidelines, giving certain taxpayers and businesses an additional 90 days (until July 15, 2020) to file and pay their 2019 tax liability.

The following types of filers are eligible to use the special coronavirus tax extension.

• Individual Form 1040 filers
• Corporations filing Form 1120
• Trusts and estates filing Form 1041
• Fiscal year partnerships, associations and companies with due dates on April 15, 2020 (uncommon)

Read more about state returns

The first quarter 2020 estimated tax payment otherwise due on April 15, 2020, and the second quarter 2020 estimated tax payment otherwise due on June 15, 2020 are both deferred until July 15, 2020.

Congress allocated a total of $660 billion to the Paycheck Protection Program to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. Importantly, these loans may be forgiven if borrowers follow certain conditions including maintaining their payrolls during the crisis or restoring their payrolls afterward.

Applications must be submitted by June 30, 2020, in order to qualify for a PPP loan. Note: Lenders may stop accepting applications before that date.

In general, a company can have no more than 500 employees. Additionally,

• It must meet the definition of a small business concern under the Small Business Act; or
• As of March 27, 2020, the business’ tangible net worth is not more than $15 million and its average net income after federal income taxes for the previous two fiscal years is not more than $5 million.

Learn more about the PPP loan

The loan can be used for several things including: payroll costs, mortgage interest payments, rent payments, utility payments and interest on any other debt incurred before February 15, 2020. Mortgage interest, rent, and utility should be for obligations and services in force or beginning before February 15, 2020.

Whichever of these is less – 1) 2.5 × a small business owner’s average monthly payroll cost or 2) $10 million.

Learn more about the calculation formula

All loans have the following identical terms: 1) interest rate of 1.0%, 2) matures in five years (for loans made on or after June 5, 2020), 3) first payment deferred for six months after the loan forgiveness determination, 4) 100% guaranteed by Small Business Administration, 5) no collateral, 6) no personal guarantee, and 7) no borrower or lender fees payable to SBA.

Note: The PPP Flexibility Act of June 5, 2020, extended the loan maturity from two to five years and further deferred the first payment to six months after the loan forgiveness determination. Lenders and borrowers may mutually agree to modify terms to extend the maturity date from two years to five years.

The loan will be fully forgiven if the funds are used for:

• payroll costs
• interest on mortgages
• rent, and
• utilities

Due to likely high subscription, at 60% of the forgiven amount must have been used for payroll.

Loan payments will also be deferred until six months after the SBA makes a determination on loan forgiveness. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.

Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. Under the PPP Flexibility Act of June 5, 2020, forgiveness will not be allowed if less than 60% of the loan proceeds are used for payroll.

Learn more about tax considerations for expenses paid with forgiven PPP loans.

You can apply for the Paycheck Protection Program (PPP) through a participating lender. Once you find a lender that is accepting applications, you will likely need to gather your monthly payroll expenses for 2019 and 2020. The PPP requires the lender to use your payroll expenses to determine the maximum loan amount as well as the amount that may be forgiven.

You will need to complete the Paycheck Protection Loan Application and payroll documentation.

Lenders will also ask you for a good faith certification that:

1. The uncertainty of current economic conditions makes the loan request necessary to support ongoing operations
2. You will use the loan proceeds to retain workers and maintain payroll or make mortgage, lease, and utility payments
3. During the period beginning on February 15, 2020, and ending on December 31, 2020, you have not and will not receive another loan under this program.
4. From Feb. 15, 2020 to Dec. 31, 2020, you have not received a loan duplicative of the purpose and amounts applied for here (Note: There is an opportunity to fold Economic Injury Disaster Loans (EIDL) made between Jan. 31, 2020 and the date this loan program becomes available into a new loan. Any outstanding EIDL amount is added to the amount available to the taxpayer minus any advance from the EIDL program.).

It’s important to check with your banking partner for complete details.

Yes, costs for employee vacation, parental, family, medical and sick leave are included, in addition to payroll costs. There are some exclusions when a credit is allowed under the Families First Coronavirus Response Act.

Learn more about the Paid Sick Leave Refundable Credit

In general, you can calculate payroll costs using data either from the previous 12 months or from calendar year 2019. For seasonal businesses, you can use average monthly payroll for the period between February 15, 2019, or March 1, 2019, and June 30, 2019.

The 24-week period begins on the date the lender makes the first disbursement of the PPP loan. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval. Those who had a PPP loan before June 5, 2020, may continue to use an eight-week period.

Note: The PPP Flexibility Act of June 5, 2020, extended the coverage period from 8 weeks to 24 weeks.

The PPP allows small business owners, including sole proprietors, to borrow up to 2.5 times their average monthly payroll costs. A portion of the loan may be forgiven if the proceeds are used for payroll costs, mortgage interest, rent and utilities. The interest rate on the amount that must be repaid is only 1% and the term is five years from the date of disbursement. The first payment is due six months after the loan forgiveness determination date, though interest will accrue during that deferral period.

Note: The PPP Flexibility Act extended the loan maturity from two to five years (for loans made on or after June 5, 2020).

Independent contractors and self-employed individuals who don’t have any employees and don’t issue paychecks to themselves during the year will use their net income from self-employment as a substitute for wages for purposes of the PPP. These owner-employees can still qualify for loan forgiveness as long as the loan proceeds are used for qualifying expenses.

Self-employed individuals substantiate net income from self-employment by providing a copy of Schedule C (Form 1040) for tax year 2019 with their loan application as well as any Form 1099-MISC detailing nonemployee compensation, invoice, bank statement, and book of record that establishes they are self-employed. They must also provide documentation from 2020 that show they were in operation on or around February 15, 2020.

Assuming your payroll expenses consist solely of the reasonable compensation you pay yourself and report on a W-2, you can find that expense on line 7 of your corporate tax return (1120-S). Alternatively, you may be able to find your payroll expenses in your accounting or bookkeeping software.

Yes, even with part-time employees, the payroll tax postponement allows business owners to defer payment of the employer’s share of Social Security (but not Medicare) contributions for employees during 2020. Self-employed individuals can also defer one half of social security taxes for 2020 as well.

Note: Previously, employers that receive a PPP loan could not defer any payroll taxes due after the employer received a decision for the lender that the PPP loan is forgiven. The PPP Flexibility Act of June 5, 2020, removes that restriction, so that PPP recipients can now delay payroll taxes.

The CARES Act allows the USDA to provide direct assistance to agriculture producers as well as makes appropriations for the Commodity Credit Corporation. As the USDA works to implement the CARES Act, visit https://www.farmers.gov/coronavirus for more information about programs for farmers.

Yes, self-employed individuals can benefit from the CARES ACT. If your small business is experiencing fluctuating income and expenses, there is an opportunity to carry a net operating loss from this year back to the past five years. That means a possibility of amending a past return to carryback a net operating loss and receive a refund.

Anyone who lost their job due to coronavirus impacts will likely be eligible for unemployment benefits. This includes full-time and part-time employees and self-employed business owners, gig workers, and people with a limited work history. You should apply for unemployment benefits with your state.

How much unemployment assistance you’ll get depends on your state. In addition to state benefits, eligible workers will get an extra $600 weekly in federal assistance. You now get 39 weeks of federal unemployment benefits. Typically, unemployment provides up to 26 weeks.

One goal of the paycheck protection program is to provide funding for employers to maintain their payroll. If you obtain a loan and either lay off employees or reduce their compensation, your ability to obtain loan forgiveness could be impacted. In order to maintain eligibility for 100% loan forgiveness, you must spend at least 60% of the loan proceeds on payroll costs.

Note: The PPP Flexibility Act of June 5, 2020, reduced the loan payroll percentage threshold from 75% to 60%. It also extended the time from June 30 to December 31, 2020, the time to rehire workers.

You won’t qualify for a paycheck protection program loan if your business is illegal under federal, state, or local law, you apply for a loan to cover costs of household employees like nannies or housekeepers, if you have current criminal charges or recent criminal convictions or if you have been involved with a defaulted SBA loan. Lenders may also have restrictions and program funds may run out before the due date for submitting applications.

The Federal Reserve established the Main Street Lending Program which provides another option to companies who didn’t get into the Paycheck Protection Program. These loans are not forgivable (i.e., it must be repaid) but offer small businesses (less than 15,000 employees or $5 billion in 2019 revenue) in good financial standing a way to get access to money to maintain payroll and keep workers employed.

You may also apply to the Economic Income Disaster Loan program directly through the SBA.

Yes. Lenders are required to make the first disbursement of funds no later than 10 calendar days after your approval, so your money should be on its way.

If you applied before the SBA stopped accepting applications on April 16, you should apply again. The SBA will begin accepting applications on April 27, 2020. Check with your lender to find out if your pending application was approved or denied.