Nancy C. Prager
Covid-19 Stimulus: Practical Overview of Business and Individual Relief
Updated: Apr 2, 2020
In response to the unprecedented impact Covid-19 is having on the economy, the United States government has enacted three separate, but equally important, stimulus packages: Families First Coronavirus Response Act, the Coronavirus Aid, Relief, and Economic Security Act, and Phase III (collectively “the Stimulus Package I”). Significantly, the combined benefits in Stimulus Package I provide relief to individuals and businesses of all sizes, from sole proprietorships to publicly traded companies, and non-profit ones too.
This initial guide is provided as a resource from Prager Law to provide an overview of how the benefits may assist you, your family, and your business through this unprecedented period. There are an incredible number of benefits for businesses in the Stimulus Package I. Many of them are technical accounting issues (e.g. treatment of Net Operating Losses). However, the two primary programs of interest to small businesses and independent contractors are the Economic Injury Disaster Loan and Paycheck Protection Program loan.
This memorandum is by no means comprehensive but should serve as a resource as you consider what is available. We begin with relief for individuals, which includes both the employed and self-employed as well as families. Please note that many of the processes and procedures for implementing the Stimulus Package I have not yet been rolled out.
1. Relief for Individuals
2020 Recovery Rebates
• Individuals earning less than $75,000 and up to $99,000, or couples filing jointly earning less than $150,000 and up to $198,000, in revenue based on the most recently filed tax return will receive a one-time stipend of up to $1,200 (individual)/ $2,400 (joint filing). Parents that qualify for a Recovery Rebate will receive a an additional $500 per child they claim as a dependent.
• Payments will be made to the account information on file with the Internal Revenue Code. Those who are paid by check may experience a significant delay in the process.
• There may be an additional round of Recovery Rebates if the Covid-19 pandemic continues to impact the US economy.
• Senator Chuck Schumer has described the “unemployment” benefits as “Unemployment Benefits on steroids.”
• Unemployed workers will receive their standard payments plus a $600 weekly stipend.
• For the first time ever, unemployment insurance will be available to both employees and individuals who pay self-employment taxes (i.e. independent contractors):
Though self-employed individuals qualify for unemployment under the Stimulus Package I, the federal government and states have not announced what the process will be to make the funds available.
Significantly, the Department of Labor and Internal Revenue Service must coordinate to determine how to calculate the wages for 1099 workers as companies do not pay unemployment taxes on consultant wages.
At a minimum, unemployment for 1099 workers will be based on the amount of income on which they have paid taxes in the past. Consult your tax professional as it may be advantageous to file your 2019 taxes instead of relying on your 2018 taxes if you earned more money in 2019.
• With record numbers of people filing for unemployment, along with the extension of unemployment to independent contractors, there will be delays, potentially significant, in processing applications. However, unemployment benefits may be paid retroactively.
• NOTE: Receiving unemployment benefits will negate the ability to excuse any loans you receive under the Stimulus Package I as described below. It is an either or when it comes to payroll. Family and Medical Leave & Sick Leave
• The Emergency Family and Medical Leave Expansion Act is a multifaceted benefit that both expands the amount of leave available to employees and extends coverage to self-employed individuals through tax credits.
• If your employer has fewer than 500 employees, who have been on the job for at least 30 days, have a right to take up to 12 weeks of job-protected leave under FMLA if they have been diagnosed with Covid-19, are subject to a quarantine, or are caring for a child or children who are home due to school being closed or for whom child care is otherwise not available.
The first 10 days of leave may be unpaid during which the employee may use other available paid time off to cover the costs. Thereafter the employer must pay the employee at least 2/3 of their normal pay rate.
The family leave pay is capped at $200 per day and $10,000 total and is limited to 12 weeks.
Note, that if you work for an employer with less than 50 employees, the Department of Labor may exempt the business from the FMLA requirements if it would jeopardize the viability of the business.
Additionally, health care providers are exempt from offering FMLA at this time. (the idea being that affected employees will return to work upon recovery… thank you to the health care workers working during this time.)
• Self Employed individuals who meet the conditions for FMLA will qualify for a refundable tax credit equal to the 100% of the qualified family leave amount had they been employed by a third-party company.
The benefit will be in the form of a tax credit that self-employed people can apply against the taxes due for 2020 income.
The credit will be capped at the LESSER of $200 per day or the average daily self-employment income for the tax year and is limited to 50 days.
People claiming the benefit will need to provide documentation with the 2020 taxes as the Department of Treasury requires to support the claim.
• Full-time employees of companies with more than 50 but less than 500 employees are now eligible for up to 2 weeks PAID sick leave equal to 2/3 of regular pay. The same benefit is available for companies with less than 50 but the company may appeal to the Department of Labor to avoid this requirement.
Who is Self Employed?
• Whether you are self-employed is a matter of how you file your taxes not what kind of entity through which you file your taxes.
• If you pay Self Employment taxes you should be considered self-employed for purposes of the Stimulus Package I benefits.
2. Relief for Businesses
Some general considerations:
• Unless the Stimulus Package I otherwise specifies, the benefits available to businesses are available regardless of type of entity or industry. That is, small businesses include: corporations, partnerships, limited liability companies, AND sole proprietorships.
• Stimulus Package I benefits are also available to non-profit organizations.
• Where qualification for a benefit is based on being a “small business,” refer to the Small Business Administration’s Table of Small Business Standards which delineates what qualifies as a “small business” per industry based on either revenue or number of employees (see SBA Small Business Standards)
• A company may participate in both the Economic Injury Disaster Loan and Paycheck Protection Program Loan as long as the company does not use the funds to cover the same expenses. Consult your accounting and financial advisors to determine which is the best way to proceed if you have any questions.
• Businesses that continue to operate during this period may participate in both the Economic Injury Disaster Loan and Paycheck Protection Program Loan including the fully excusable portions.
Economic Injury Disaster Loans
• The Stimulus Package I clarifies that the existing SBA program to provide loans to businesses impacted by a natural disaster, so called Disaster Loans, include Covid-19 response as a disaster.
• Economic Injury Disaster Loans (“EIDL”) are available to companies, non-profits, sole proprietors and independent contractors alike.
• Requirements for obtaining the EIDL are much lower than other SBA backed loans. The SBA may rely solely on the applicant’s credit score.
• Significantly, a borrower may borrow up to $200,000 without providing a personal guarantee.
• A BORROWER MAY RECEIVE A $10,000 EMERGENCY CASH ADVANCE UNDER THE EIDL THAT DOES NOT HAVE TO BE REPAID IF SPENT ON CERTAIN ALLOWABLE EXPENSES:
PAYROLL (includes commissions et al)
UTILITIES (INCLUDES INTERNET AND TELEPHONE)
HEALTH INSURANCE COSTS
INTEREST ON PREEXISTING DEBT
REPAYING OTHER OBLIGATIONS THAT CANNOT BE MET DUE TO REVENUE LOSSES
• Prager Law recommends applying for the EIDL as soon as possible to avoid delays in processing. The United States Chamber of Commerce has instructions on filling out the SBA Application) here: Instructions
Paycheck Protection Program
• The Paycheck Protection Program is a new loan program based on the existing SBA guaranteed 7(a) loan structure.
• Though based on the traditional 7(a) loan the Paycheck Protection Program has significant benefits to small businesses with less than 500 employees facing Covid-19 risks:
Available to more types of entities and individuals as long as the businesses were in operation prior to February 15, 2020;
Includes a forgivable portion as long as the employer maintains the same rate of employment in place as of February 15, 2020, for the 8 weeks following the origination of the loan; and
Lenders are expected to defer fees, principal and interest for no less than 6 months and may for up to a year following the effective date of the loan.
• The forgivable portion of the Paycheck Protection Program loan may be used for payroll costs, rent and mortgage payments as well as utility payments.
• Note, however, that if an employer doesn’t maintain the headcount of employees in place as of February 15, 2020 but rehire them by June 30 at their normal rate there is a pro-rata loan forgiveness available.
• The Paycheck Protection Program application and process will be released in the next thirty (30) days.
• Unlike the EIDL the Paycheck Protection Program will be admistered through banks and other lending operations.
Business Obligations and Tax Benefits
• In consideration for the generous benefits of Stimulus Package I, the government is making an effort to have companies retain employees through this difficult time.
• The Stimulus Package I includes obligations for businesses with less than 500 employees to offer extended Family and Medical Leave as well as provide 2 weeks of paid sick leave to an employee struck with Covid-19 or who has to care for someone who has been or needs to stay home with children.
• Businesses will be able to claim a tax credit equal to 100% of the costs of wages paid for family leave and paid sick leave wages up to the amount allowable based on a number of factors.
• Failure to comply with the sick leave requirement can expose an employer to civil liability.
• Businesses who have less than 50 employees may request an exemption from the FMLA and paid sick leave requirements with the Department of Labor if providing them will make the business unviable.
• There is also a provision in the Stimulus Package I that allows employers to not remit their portion of payroll taxes to the Federal government (i.e. FICA payments) for the remainder of 2020. However, employers will need to make up those payments in at least two payments, one due at the end of 2021 and the other due at the end of 2022. Essentially these are interest free loans BUT payroll taxes are not dischargeable debts in a bankruptcy or other reorganization.
There are many, many, other elements in the Stimulus Package I that may benefit you. This memorandum is not intended to address your particular situation but rather to provide an overview of the items that will benefit most individuals and small businesses. Please consult your accountant and financial advisors, as well as reaching out to us, if you have questions about your particular situation.
Before we go… the Stimulus Package I includes an extra tax deduction of $300 for individuals making charitable donations above either their allowable deduction or in addition to the standard deduction. Nancy has made a donation to the Nicholas House in Atlanta and to the Mid-South Food Bank in Memphis.
Edited to add some resources:
Accounting Prose on how to calculate expenses that can be excused in Stimulus Package I PPP loans
The Senate Committee on Small Business & Entrepreneurship Overview and Guidelines to Stimulus Package I