Which bailout is right for you?
Last week the President signed into law the bill passed by the House and Senate – the Coronavirus Aid, Relief and Economic Security Act (CARES Act). Contained within its pages is $2.2 trillion in spending to help us combat this virus and help support our economy through it. Before I begin to describe the major things pertaining to you, may I give a disclaimer that things have been changing and updating constantly. It is hard to keep up. So, this represents my best understanding at the time.
Prior to the CARES Act, the Treasury announced that most people would receive advanced stimulus loans. These are the checks of $1,200 per taxpayer and $500 per dependent 16 years or younger you have heard about on the news. These amounts are phased out for single adjusted gross incomes over $75,000 or married filing joint over $150,000 (based on your 2018 return or 2019 if filed before the Treasury’s snapshot period). It is reduced by $5 for every $100 of income over that limit. If you have dependent children that filed their own tax return but you claimed them as a dependent on your return, they are considered dependents and fall under the $500 age based determination for dependent checks. This is not free money. This is a tax advance loan. It will be required to be paid back on your 2020 return (the one filed in 2021) if your income exceeds those $75k/$150k thresholds. These checks or direct deposits are anticipated in late April, early May, 2020.
If you received Social Security but did not need to file a tax return, your stimulus money will be sent to the same account or address used to deposit or mail your social security payment.
If you didn’t qualify based on your 2018 return but would on your unfiled 2019 return, we don’t know what date they are using as the cut-off so it may already be too late to file your 2019 return to qualify for the check.
If the IRS doesn’t have a bank account on file for you and you have moved since filing your 2018 tax return without letting the IRS know your new address, your check may go to your old address. You may want to consider filing a mail forwarding request with the postal service.
For those with businesses, there are several options for help through these times of struggle.
SBA Economic Injury Disaster Loan (EIDL)
The most promising aspect of the stimulus is the SBA economic injury disaster loan (EIDL). You apply on the SBA website or a paper return.
Apply online: https://disasterloan.sba.gov/ela
The disaster loans are for small businesses that have been financially impacted as a direct result of the COVID-19 since Jan. 31, 2020.
These are low interest rate loans up to $2 million to help meet financial obligations and operating expenses which could have been met had the disaster not occurred. 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. The interest rate for private non-profit organizations is 2.75%. Repayment term is up to a maximum of 30 years.
For more information call SBA's Customer Service Center at (800) 659-2955 or email firstname.lastname@example.org
The loan is open for application for one year. If you apply now and you find it is not enough funding, you can request additional funds later. Likewise, if you apply and find you don't need that amount, you can return funds.
The funds come from the U.S. Treasury and the loans are administered by the SBA. Banks are not involved.
You can request up to $25,000 without collateral - so $25,000 can be an unsecured loan. For loans of more than $25,000, the SBA will not decline a loan for lack of collateral, but will require borrowers to pledge what is available.
The requirements for the loan do not say how many years your business needs to have existed. However, an application could be turned down because there is not enough information for them to make their evaluation and determination, including sufficient operation and financial history.
Disaster Grant ($10,000)
As part of the EIDL, there is a box to check to receive a $10,000 loan advance. You don’t have to take more than the $10,000 if you don’t want to but make sure you check the box to receive the $10,000 loan advance. The loan application is slightly different for sole proprietors vs. other small businesses.
If used to help keep your business going, the $10,000 loan advance is considered a grant and does not have to be repaid.
After you apply, you may be contacted by the SBA to provide other documents such as the ones below. But be sure to do this ASAP because once they give out all the grant money, it’s over.
It is recommended that you fill these other forms out just in case the SBA requests them.
a. Personal financial statements
b. Request for transcript for tax returns
c. Schedule of liabilities
d. Additional filing requirements form
Payroll Protection Program Loan
The stimulus bill covers businesses with less than 500 employees hurt by the virus under the Payroll Protection Program Loan. The amount you can receive is the total average monthly payroll costs for the last year x 2.5 if you will keep your business open, meaning you do not go out of business, and don’t layoff you employees or if you are forced to close and don’t layoff your employees. Payments received by independent contractors may be included in determining their wage costs.
If you use these funds to satisfy payroll, rent, utilities and certain insurance, and maintain your 2/15/2020 employee headcount, the entire loan can be forgiven. Amounts not used for these purpose by June 30, 2020 will be converted into a low interest loan with a 10 year period.
The loan will have no collateral and no guaranty if you commit to have the same number on your payroll as you did Feb 15th. All you need to provide is your payroll costs for the last year.
The loan amount is 2.5 times the Average total monthly payments for the following payroll costs up to $10 million:
Salary, wage, commission, or similar compensation
+ payment of cash tip or equivalent
+ payment of vacation, parental, family, medical, or sick leave
+ allowance for dismissal or separation
+ payment required for the provisions of group health care benefits, including insurance premiums
+ payment of any retirement benefit
+ payment of State or local tax assessed on the compensation of employee
Employees compensated in excess of $100,000 of annual salary are not included.
The application for this loan was released this morning and lenders will begin accepting applications on April 3rd. It is intended for federally insured banks and credit unions to administer this loan. I would check with your preferred SBA lender about the application process.
It is currently believed that if you receive the $10,000 Disaster Grant and the PPP loan, the $10,000 grant will reduce the forgiveness amount of the PPP loan. It is also currently believed that if you receive the PPP loan and the EIDL, the PPP loan will be rolled into the EIDL amount or vice versa (can’t have both at the same time.)
Income Tax Filiing and Payment Due Date Extension
Prior to the CARES Act, the Treasury extended the April 15th filing and tax payment due date to July 15th.
Delay of Payment of Employer Payroll Taxes
If you are not participating in the Payroll Protection Program Loan, you may defer payments that would be due semi-weekly or quarterly until 2021 or 2022. This is essentially a zero interest loan for the amount of payroll taxes due. The required payroll tax returns should still be filed timely and the amounts due tracked.
Small Business Debt Relief
If you already have an SBA 7a Loan, you may be able to have principal and interest payments on this loan covered for up to six months. You should work with your lender to coordinate this benefit.
If you are local to Utah, there are also local programs available:
Utah Bridge Loan – A 0% five year loan for up to three months of operating expenses for businesses with fewer than 50 employees impacted by the pandemic. Information is at https://business.utah.gov/utah-leads-together-small-business-bridge-loan-program/.
If you would like to talk with someone about which stimulus might be best for your personal situation, feel free to reach out to me.
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