Overview of Some of the State and Federal COVID-19 Crisis Related Tax Relief Measures and Programs Available for Small Businesses

The novel coronavirus impacts how we live, how we work and the global economy. To support small business owners during this time of uncertainty, we’re providing high-level information as of April 3^rd, 2020 on some of the tax relief measures and programs that federal and state administrations made available to small and medium size enterprises.

Income tax filing and payment deadlines

The IRS extended the April 15, 2020 filing and federal income tax payment deadline to July 15, 2020. Second quarter estimated tax payments usually due June 15, 2020 are now extended to July 15, 2020. All other taxes due on or after April 1, 2020 are now extended to July 15, 2020.

More and more States with a business income tax have been extending their April 15, 2020 due date in response to Coronavirus. For instance, 

• New York, New Jersey, California, Delaware, Maryland have extended the filing of corporate tax returns and payments from April 15, 2020 to July 15, 2020. If you are unable to file your 2019 return by July 15, 2020, you can request an automatic extension to file your return by October 15, 2020. 
• At this time, New York State is not providing any extension for the payment or deposit of any other type of state tax, or for the filing of any state information return. Remittance of income tax withheld by employers required to be made using Form NYS-1, Return of Tax Withheld, must be made on time.
• Pennsylvania corporation tax returns and payments that were due May 15 are extended to August 14. 
• Indiana extended the filing of corporate tax returns and payments, along with estimated payments originally due by April 15 or April 20 to July 15, 2020. Those originally due on May 15, 2020 are now due on or before August 17, 2020. All other tax return filings and payment due dates remain unchanged.
• Michigan has extended the filing of corporate tax returns and payment from April 30, 2020 to July 31, 2020. 
• New York City hasn’t extended business tax returns filing due date yet. Instead, New York City will waive penalties for late filing, late payment, and underpayment penalties for business and excise taxes originally due between March 16, 2020 and April 25, 2020. Interest is not waived

At this time, the IRS and most states have not extended the June 15 estimated tax payment due date for corporations. That said, California is providing an extension to file and to pay the first and second quarter estimated tax payments as well as LLC taxes and fees, non-wage withholding payments.

Employee retention credit and payroll tax deferral

An employee retention credit and a payroll tax payment deferral are available for certain small businesses subject to closure or experiencing hardship due to a State of Emergency that the federal Government proclaimed to exist in the U.S.

Employee retention credit

A refundable tax credit has been created to assist employers in retaining employees. The credit is computed at 50% of wages and compensation including health benefits capped at $10,000 paid by eligible employers to each employee between March 13, 2020 and December 31, 2020. 

Wages do not include those taken into account for purposes of the payroll credits for required paid sick leave or required paid family leave, nor for wages taken into account for the employer credit for paid family and medical leave.

Subject to limitations and exceptions, employers of less than 500 employees are required to provide mandatory sick time and paid family leave but are eligible for payroll tax credits to offset the costs. 

The credit is available to employers, including non-profits, whose operations have been fully or partially suspended as a result of a government order limiting commerce, travel or group meetings. The credit is also provided to employers who have experienced a greater than 50 percent reduction in quarterly receipts, measured on a year-over-year basis. Eligible self-employed individuals also qualify for the credits. However, healthcare providers and emergency responders are excluded. Employers with fewer than 50 employees can be exempted.

However, a small business cannot claim both the employee retention and payroll tax credit and the Paycheck Protection Program loan described below. This also means that if you couldn’t get a small business Paycheck Protection Program loan for whatever reason, you may claim the employee retention credit.

Deferral of payment of employer payroll taxes

Employers (including self-employed individuals) will be able to postpone the payment of the employer’s portion of social security taxes through the end of this year. The delayed payments are due in two equal payments, one due on or before December 31, 2021 and the second due on or before December 31, 2022.

However, an employer cannot claim both the employer’s share of social security taxes payment deferral and receive the Paycheck Protection Program loan described below.

Small Business Administration (SBA) loans

The Economic Injury Disaster Loan (EIDL) and the Emergency Economic Injury Grants

Small businesses, homeowners, renters, private non-profit organizations harmed by COVID-19 are eligible to apply here for a COVID-19 Economic Injury Disaster Loan to help overcome the temporary loss of revenue that they are experiencing. Historically, the SBA can provide an Economic Injury Disaster Loan of up to $2 million to businesses located in a declared disaster area, that cannot get loan from traditional banks, to help pay operating expenses (rent, payroll, mortgages, etc.). The loan carries interest at 4% maximum and may be reimbursed over 30 years maximum. This program has been extended to the COVID-19 disaster. Small businesses impacted by the public health crisis may apply for an EIDL (COVID-19 EIDL). Once they apply for COVID-19 EDIL, they may request an emergency advance of up to $10,000 while waiting for their application to process. 

The emergency grant of up to $10,000 should be made available within three days of a successful application. You won’t have to repay it, and you may use it to keep employees on payroll, to pay for sick leave, meet increased production costs, pay your office rent, or mortgages.

If you already applied for and received a COVID-19 related EIDL and/or Emergency Economic Injury Grant between January 31, 2020 and June 30, 2020, you still have the option to apply for the Paycheck Protection Program (“PPP”) loan described below. 

If you haven’t applied for neither the Paycheck Protection Program loan nor the COVID-19 related EIDL and/or Emergency Economic Injury Grant, you can apply for both or either one.

If you already applied for and received an EIDL unrelated to COVID-19, you still have the option to apply for the Paycheck Protection Program (“PPP”) loan described below. 

If you already applied for and received an EIDL unrelated to COVID-19 (or a COVID-19 EDIL), your outstanding EDIL (or COVID-19 EDIL) balance will be added to two and half of your 2019 monthly average payroll expense to determine the maximum “PPP” loan amount that you may borrow. If you already received the emergency advance of up to $10,000, the maximum “PPP” loan amount that you may borrow is two and half of your 2019 monthly average payroll expense plus your outstanding EDIL (or COVID-19 EDIL) balance minus the emergency advance that you received.

In either cases, if you’re successful in your Paycheck Protection Program (“PPP”) loan application and receive a “PPP” loan or refinance an EIDL into a “PPP” loan, you cannot use your EIDL for the same purpose as your “PPP” loan. For example, if you use your EIDL to cover payroll for certain workers in April, you cannot use “PPP” loan for payroll for those same workers in April. But you could use it for payroll in March or for different workers in April.  

Small businesses that may apply include:

• for profit businesses or IRS approved charitable organizations with less than 500 employees
• sole-proprietors, independent contractors, and other self-employed individuals

Household employer, individuals who employ household employees such as nannies or housekeepers, are ineligible for the small business loan.  

From April 3^rd, 2020 to June 30, 2020: small businesses, IRS approved charitable organizations, and sole proprietorships can apply for and receive loans. From April 10^th, 2020 to June 30^th, 2020, independent contractors and self-employed individuals can apply for and receive loans.

The SBA Administrator wants to ensure that as many eligible borrowers as possible obtain a “PPP” loan. As a result, you cannot apply for more than one “PPP” loan. Therefore, if you apply for a “PPP” loan you should consider requesting the maximum allowable amount of loan. In addition, since the “PPP” is on a first-come, first serviced basis, the earlier you apply, the better.

You may borrow up to 2.5 times your 2019 average monthly personnel expenses which include gross salary, plus commissions or tips, plus employer payroll taxes, plus benefits such as cost for vacation, paid sick leave, health insurance, etc. And the Government may forgive the loan if you use the money to keep all your employees as of February 15th, 2020 on payroll.

1099-MISC independent contractors do not count as employees for purposes of a small business loan calculation. They can apply for a PPP loan on their own. Also, any compensation of an employee whose principal place of residence is outside of the United States is excluded from the amount of loan calculation.

To apply for the small business funding loan, you must submit SBA Form 2483, Paycheck Protection Program Borrower Application Form, and payroll documentation. You should first try to apply through your current bank, or lender. They may have you complete an online version of the application form. If your current banks are not participating in the program, you can apply through any existing SBA lender. Please click here for a list of SBA lenders. You may also ask for referral.

The loan carries interest at a fixed rate of 1% from the date you get the funds. You will begin reimbursing your loan (principal and interest) from the 7th month and you will have 2 years to pay it off, if it hasn’t been forgiven in part, or in total. Up to the full principal amount of the loan and the accrued interest may be forgiven.

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.

Other SBA programs are also available. 

For small companies seeking relief, the Small Business Administration offers two other funding options: the SBA Express Bridge Loans and the SBA Debt Relief

• The SBA Express Bridge Loans: A small business who currently has a business relationship with an SBA Express Lender can request up to $25,000 fast. These loans may serve as a lifeline to small businesses that are experiencing a temporary loss of revenue. They can also be a term loans or used to bridge the gap while applying for a direct SBA Economic Injury Disaster loan (EIDL). The small business borrower will repay in full or in part the bridge or term loan with the money from the EIDL. To learn more please click here.
• The SBA Debt Relief: If you currently have an SBA 7(a), 504 loans, or microloan, the SBA will automatically pay the principal, interest and fees of this loan for a period of six months. Likewise, the SBA will automatically pay the principal, interest and fees of SBA 7(a), 504 loans, or microloans issued prior to September 27, 2020. To learn more please click here.

New York City Small Business Continuity Loan Program

As part of its NYC Small Business Continuity Loan Program, New York City is providing an interest-free loan of up to $75,000 to businesses with fewer than 100 employees located in Queens, Brooklyn, Bronx, Manhattan, and or Staten Island that can demonstrate at least a 25% decrease in revenue as a result of COVID-19. 

The application is a three-step process:

• Step 1, the small business needs to submit an SBS application online. The application package includes financial documents, proof of New York City location and a signed participation affidavit. 
• Step 2, the City will review the application for eligibility.
• Step 3, the City will forward to the applicant a link to the lender’s online application

To learn more and apply, please click here.

These are stressful times and we know that you have questions about how to secure your business. We can assist you by reviewing available financing options, helping with cash flow modeling, business continuity planning and more. Please contact us with any questions.