On March 13, 2020, President Trump issued an “Emergency Declaration” under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act). This triggered certain federal statutes that put into play various federal regulations that will help sustain individuals and businesses during this pandemic. Here are a few of the most recent developments that will directly impact you, either as an individual or a business owner.
I. Employers Can Make Tax-Free Disaster Relief Payments
An employer may want to help employees who have suffered financial loss due to a disaster. Under IRC Sec. 139, an employer can establish a program that generates a deduction for disaster relief payments to employees without the employee having to include the money as income. This money includes, but is not limited to, reasonable and necessary personal, family, living, or funeral expenses incurred as a result of the qualified disaster, specifically, childcare expenses resulting from school/daycare closures and costs incurred to enable an employee to work from home.
These payments are tax-deductible to the employer and tax-free to the employee. Although the employee should submit receipts for such expenses, receipts are not required. For more information on this IRS provision, call your CPA to discuss.
II. Families First Coronavirus Response Act (“FFCRA”)
Signed by President Trump on March 18, 2020, FFCRA requires all covered employers (excluding employers such as first responders and healthcare providers, as well as several others) with 500 or fewer employees to provide paid leave to employees under specified circumstances. All covered employers must post the DOL poster (or its equivalent).1
A. Emergency Paid Sick Leave (“EPSLA”)
Up to 2 weeks (80 hrs) paid leave;
Part-time employees are eligible for leave for the number of hours that the employee is usually scheduled to work over that period.
An employee may be eligible if he meets one of the six (6) criteria outlined in the box below.
B. Emergency Family & Medical Leave (“EFMLEA”)
Provides 12 weeks leave with up to 10 weeks paid leave if the employee meets the qualification of #5 in the box below.
Employers with less than 50 employees are exempt from the EFMLEA if such leave would jeopardize the validity of the employer’s business.
1. The employee is subject to a stay at home order by federal, state or local order and cannot work, including telework;
2. The employee is self-quarantined under doctor’s order;
3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis;
4. The employee is a caregiver for someone who is either:
under governmental stay at home order, or
has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
5. The employee must care for a child because school/daycare closed due to COVID-19; OR
6. The employee is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services.III. Coronavirus Aid, Relief & Economic Security Act: (“CARES”)
This Act was signed by President Trump on March 27, 2020, and provides benefits to both individuals and employers. Sometimes called the 2020 Stimulus Package, there are multiple aspects to this Act releasing over 2 Trillion Dollars into the economy to spur economic development and to provide relief to individuals and businesses. The most widely discussed parts of this Act provide cash in the form of IRS refunds and SBA loans.
A. Individuals:
Unemployment Supplement: $600 per week added to the state’s allowance if related to COVID-19. Federal Payments: single individuals with an AGI of $75,000 will receive up to $1,200 and $2,400 for Joint filers with an AGI of $150,000; plus $500 per qualifying child under 17. That amount is reduced by $5 for each $100 that a taxpayer’s AGI exceeds the phase-out threshold.
B. Businesses:
a. Payroll Protection Program (“PPP”):
This program provides a business with the opportunity to continue the employment of its workforce during this pandemic. If the business has already reduced staffing requirements and obtains a PPP loan, then those employees returned to the payroll by June 30, 2020 count for purposes of loan forgiveness. The purpose of the loan is to help keep people working, so if the business uses less than 75% of the loan for reasons other than payroll, then that portion of the loan is not forgiven after 8 weeks and an additional 25% penalty is imposed. There is also a 25% penalty for failing to bring back 75% or more of the business’s jobs.
The business must be a “small” business, as defined by the SBA. Normally that means fewer than 500 employees. There are some exceptions to that rule, and some employers with more than 500 employees may qualify. The average monthly payroll is determined for the business (again, there are several methodologies for determining that monthly amount), and the average monthly amount is multiplied by 2.5. That is the loan amount for which the business qualifies. Eight weeks after receiving the loan, the SBA will review the required documentation of how the money was spent, and if it meets the qualification of payroll expenses, rent, interest on loans, and other expenses, then that portion of the loan spent on those items will be forgiven. The unforgiven balance (either because spent on unqualified expenses or due to penalties) must then be repaid to the lender at 1% interest over 24 months. The Act intends that all the money lent will be used for the business’s payroll and as such, the full amount of the loan should be forgiven. If there is an unforgiven portion, the loan does not require security from the borrower and is 100% guaranteed by the federal government.
b. Economic Injury Disaster Loan (“EIDL”):
Businesses may also apply for a low-interest loan from the SBA at a rate of 3.74% (nonprofit, 2.75%) payable over 30 years. No collateral or proof of ability to pay is required. The maximum amount of the loan is $2 million. In addition to this loan, the first $10,000 does not have to be repaid. At this time, a business may not apply for both a PPP and an EIDL.