Mamone Villalon PLLC prides itself on offering dynamic and efficient solutions for small to medium sized businesses. As business owners and entrepreneurs, we are particularly conscious of the disruption to businesses caused by the COVID-19 pandemic. We are constantly monitoring the government’s response to this situation and would like to take this opportunity to provide you with a summary of relevant points in the economic stimulus package, known formally as the “Coronavirus Aid, Relief and Economic Security Act” but more commonly referred to as “phase 3” (the “law”), which was signed into law on March 27, 2020.
News outlets are reporting on a second, “phase 4” stimulus bill that is likely to go through congress in April. We will continue to provide updates as information becomes available. Please note, this law is expansive, and this is a very general overview. If you have specific questions, please consult with an attorney. This is not intended to be construed as legal advice.
Payroll Protection Program (SBA Loans) & Forgiveness
Arguably, the most relevant portion of the law provides for Small Business Administration loans to businesses with less than 500 employees. The law provides $349,000,000,000.00 be set aside for these guaranteed loans. Loan amounts will be available to the lesser of (i) the average monthly payroll multiplied by two point five (2.5) or (ii) $10,000,000.00. Loan terms are, generally, a ten-year maturity at four percent interest per annum. There are no collateral requirements and the loans will be non-recourse. The law also waives the traditional SBA “credit elsewhere” requirement, which means that business with access to alternative avenues of credit can still apply for these loans.
These loans are available to cover general business expenses including payroll, salaries, mortgage payments, rent, utilities and any other debt obligations. All business that apply are presumed to be impacted by the COVID-19 pandemic. Payments, including principal, interest, and fees, may be deferred for six months and up to one year.
Independent contractors are eligible to apply for a loan under this Payroll Protection Program.
The bill provides for loan forgiveness for amounts used to cover payroll, interest on a covered mortgage, rent, and utilities from February 15, 2020 to June 30, 2020. The loan forgiveness amount will be reduced by a quotient of the employees employed from February 15, 2020 to June 30, 2020 as compared to the number of full-time employees between either February 15, 2019 to June 30, 2019 or January 1, 2020, to February 29, 2020
The law provides a forgiveness safe harbor for employers that have already reduced their workforces. If by June 30, 2020, an employer restores their number of full-time equivalent employees to the number they maintained in between (i) February 15, 2019 to June 30, 2019 or (ii) January 1, 2020, to February 29, 2020, they will still be eligible for full loan forgiveness.
Critically, any amounts forgiven will not be counted as income for tax purposes.
Individual Credits & Rebates
The law provides for immediate tax relief for individuals by providing a credit of $1,200 for individuals and $2,400 in the case of a joint return. There is an additional credit of $500 per dependent. This credit is reduced if your adjusted gross income exceeds $75,000.00 This credit is presumed to have been paid and earned from a previous year and the bill instructs the Secretary to expedite advance refunds to eligible taxpayers.
The law provides that in addition to state unemployment benefits, the federal government will contribute an additional $600 per week to eligible individuals. The law also expands unemployment benefits for individuals that may have exhausted their unemployment benefits prior to the COVID-19 pandemic.
For businesses that elect not to apply for a Payroll Protection Program loan, the law provides for a tax credit equal to fifty percent (50%) of the qualified wages. Please consult with a tax professional.
The law also provides for a delay in the payment of payroll taxes until December 31, 2021, and December 31, 2022.
Distressed Sectors of the Economy
The bill allocated $500,000,000,000.00 for direct loans from the Department of the Treasury. Procedures for applying for these loans will be published within 10 days. These loans are available for business that employee between 500 and 10,000 employees. Interest rates are no higher than two percent per annum. These loans are subject to numerous conditions, like limitations on highly compensated individuals, stock buybacks, and guarantees regarding the restoration or preservation of a workforce.
Moratorium on Residential Evictions
The law places a 120-day moratorium on evictions, which includes properties backed by a federal guaranteed mortgage loan and prohibits the charging of late fees or penalties for the nonpayment of rent.
The law suspends payments on student loans through September 30, 2020.
We hope you find this information useful. We will continue to provide updates as information becomes available. If you have any questions please feel free to contact Mamone Villalon or review our updates.