4 CARES Act small business temporary assistance programs
Editor’s Note: The article below was originally published on April 3, 2020. It includes updates from the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act of 2021 approved on Dec. 27, 2020.
As much as you try to plan for every scenario as a small business owner or self-employed person, sometimes disasters strike. But whether your business is suffering from a tornado, flood, or global pandemic, know that you’re not alone.
Right now, the CARES Act for small business (Coronavirus Aid, Relief, and Economic Security Act) is helping small business owners, self-employed people, and employees get through the coronavirus — one step at a time. We’ve got all the info on how this new legislation impacts your business and employees.
There are four programs you can leverage for small business relief during the coronavirus outbreak:
- Paycheck Protection Program
- Employee Retention Credit
- Payroll tax postponement
- Disaster loans
How do you know which of these programs is the best fit for you and your business’ needs? We’ve got you covered:
1. Paycheck Protection Program
The Paycheck Protection Program (PPP) is a small business loan from the government. Businesses can leverage this loan to help with payroll costs and interest payments on current debt. A second round of PPP funding was approved on December 27, 2020.
Learn more about the current details for an availability of the Paycheck Protection Program—including tax considerations for expenses paid with forgiven loans.
Under the second round of PPP funding, if your business meets the PPP qualifications for a second draw, you can borrow up to 2.5 (3.5 for businesses with an NAICS code of 72) times your average monthly payroll, up to $2 million.
Good news! These loans are 100% guaranteed, without collateral or a personal guarantee. Just what small businesses need when finances are plunging quickly. You can defer the loan when you use it for permitted purposes. Another bonus: some or all of the loan balance is forgivable.
Based on the PPP rules, you can use this small business loan for:
- Employee salaries, up to $100,000 per employee
- Certain health benefits (such as insurance premiums or paid sick leave)
- Mortgage interest, rent, and utilities
- Interest on other debts
- Personal protective equipment (PPE) and investments to comply with health and safety guidelines
- Software, cloud computing, or other human resources or accounting needs
- Supplier costs that are essential to business operations (including perishable goods)
- Property damage caused by public disturbances in 2020 not covered by insurance
2. Employee Retention Credit
Think of the Employee Retention Credit as a payroll tax credit. It can help you keep your employees on the payroll if you’ve stopped doing business or significantly been affected financially.
Am I eligible for this credit?
You qualify for this credit if:
- You had to fully or partially suspend your operations due to a coronavirus shutdown order
- Your business has decreased (1) by more than 50% in 2020 compared to the same calendar quarter in 2019, or (2) by more than 20% in 2021 compared to the same calendar quarter in 2019
What does this credit cover?
As a small business owner and employer in 2020, you can claim a refundable payroll tax credit of 50% on qualifying wages, up to $10,000 during 2020. This credit is for wages paid to your employees from March 13 to December 31, 2020.
You can get a maximum credit of up to $5,000 per employee in 2020 if you:
- Employ 100 or fewer employees: All wages qualify, regardless of whether your business remains open.
- Employ more than 100 employees: Wages only qualify if they’re paid to your current employees who aren’t able to work due to your business’ closure or lack of business.
You can claim the credit for the first $10,000 of wages per employee, including payment for specific health benefits. However, you can’t double dip and use the same wages for the Employee Retention Credit and any other credits for employee wages (like the Family and Medical Leave Act). Additionally, you can’t claim this credit for employee wages if you paid for the wages using PPP loan proceeds.
During the first two calendar quarters of 2021 (January 1, 2021 through June 30, 2021), the employee retention credit is based on 70% of qualifying wages, up to $10,000 per calendar quarter. In 2021, the employee limit for determining qualifying wages is based on 500 employees instead of 100 employees.
How can I get this credit?
Though you’ll see the credit reported on your payroll tax return, you don’t have to wait until the end of the year to claim it.
To claim this credit:
- Keep your share of Social Security tax that’s already withheld (up to the credit amount) until you reconcile it on your payroll tax return (Form 941) when you file your quarterly return.
- Claim a credit advance on Form 7200, then reconcile it on Form 941 when you file your quarterly return.
- Claim the refundable credit on your Form 941 to recover any payroll taxes already paid in the quarter.
Read what the IRS has to say about this credit.
3. Payroll Tax Postponement
If you have employees on your payroll, you can delay paying your share of their Social Security contributions for the period March 27, 2020 through December 31, 2020. But you’ll owe half of the payment by December 31, 2021, and the rest by December 31, 2022.
The payroll tax postponement excludes:
- Medicare taxes, or 1.45% of wages with no ceiling
- Social Security and Medicare taxes paid by the employee
Are you a self-employed taxpayer? Self-employed taxpayers, including Schedule C and Schedule F filers, can defer half of their 2020 Social Security taxes for the period March 27, 2020 through December 31, 2020.
4. Economic Injury Disaster Loan
Businesses have historically used these loans in federally declared disaster areas. However, the disaster loan program is now available to all small businesses as a part of the CARES Act.
You don’t have to give a personal guarantee for loans under $200,000. You also can request an advance of up to $10,000 to get paid out in three days. The covered period for these loans has been extended through December 31, 2021.
Use an Economic Injury Disaster Loan for:
- Paid sick leave for employees
- Maintaining payroll
- Covering the increased cost of materials due to supply chain limitations
- Rent or mortgage payments
- Repaying unmet obligations due to revenue loss
- Any business, cooperative, or employee stock ownership plan (ESOP) with 500 or fewer employees
- All sole proprietors, independent contractors, and private non-profits
Bonus assistance program: Small Business Administration Loans
You can also find temporary assistance through the Small Business Administration (SBA). For example, if you’ve got a new or existing SBA 7(a), 504, or microloan, the organization could defer your principal and interest payments for a limited period of time. The SBA is also working to provide small businesses with economic support through access to capital, export assistance, and continued guidance. Learn more about how the SBA is tackling the coronavirus.
Help for your CARES Act and small business tax questions
We know these are uncertain, constantly changing times. But you don’t have to go it alone.
Rely on our team of small business certified tax pros to get your taxes right and keep your business on track. Connect with us at blockadvisors.com.
Looking for more information about updated small business relief? Check out our Small business tax resources for coronavirus page for the latest information.
Our small business tax professional certification is awarded by Block Advisors, a part of H&R Block, based upon successful completion of proprietary training. Our Block Advisors small business services are available at participating Block Advisors and H&R Block offices nationwide.