Highlight of Coronavirus Relief Bills as of March 27, 2020

We wanted to give a brief update on where things stand through Friday, March 27th. As we write this update, the only bill signed into law is the Families First Coronavirus Response Act. The CARES Act was just passed by the House this afternoon, and we hope that the President will sign it immediately as he has promised. Below is a detailed overview of both bills in case you missed our previous communications on them.

Families First Coronavirus Response Act — This has already passed and is law.

This act does not take effect until April 1st. (This only applies to paid sick leave from post April 1st.)

It requires employers to provide two kinds of paid leave related to COVID-19.

1. You must provide 80 hours of paid sick leave for the following COVID-19 related reasons if the employee:
   1. Is under a federal, state, or local quarantine or isolation order (guidance is needed on what this really means)
   2. Has been advised by a health care provider to self-quarantine
   3. Is experiencing symptoms and is seeking medical diagnosis
   4. Is caring for an individual under a quarantine or isolation order or caring for an individual who has been advised by a health care provider to self-quarantine
   5. Is caring for a child whose school or daycare is closed or unavailable
   6. Is experiencing any other similar condition specified by the Secretary of Health and Human Service.
2. You must also provide an additional ten weeks of pay if the employee is unable to work due to caring for a child under 18 years of age whose school or daycare is closed or unavailable.

One employee may qualify for both of these leaves. The maximum pay, in this circumstance, is $12,000.

Note: This bill only applies to companies with fewer than 500 employees. Small employers with fewer than 50 employees can exempt themselves from the ten additional weeks of FMLA if business viability is threatened. We don’t know what “viable” is defined as. For now, if you’re going to go completely broke, it’s safe to say you can skip it. Threatened viability should be relatively easy to prove later.

The Math — How does it add up?

Overall, a person can qualify for up to 12 weeks of paid leave across both kinds of leave covered. The leave calculations are different depending on why the employee is on leave.

• For leave reasons (a), (b), or (c) above: It is paid at their regular rate up to $511 per day (for up to 10 days) and is capped at $5,110.
• For leave reasons (d) or (f): It is paid at 2/3 of their regular rate up to $200 per day (for up to 10 days) and is capped at $2,000. 
• For leave reason (e): It is paid at 2/3 their regular rate up to $200 per day and is capped at $12,000. This includes ten days of paid sick leave plus the ten weeks of emergency leave.
• If a person qualifies for both leaves, the amount paid is capped at $12,000.

Show Me the Money — How do I get it paid to me?

According to the IRS, you will be reimbursed for these costs paid if you keep good records. The IRS has not said what that means, but we think that any reasonable method where you can prove who you paid and under what category should count. We are recommending that clients segregate these costs into a special payroll account to help identify the exact amounts and have good payroll and liability accounting processes. Your business will get 100% reimbursement (up to the maximums required to be paid) for:

• Leave wages paid
• Health insurance costs
• Payroll tax liability

Employers can take this credit against their overall employer withholding for the rest of their healthy and working staff. This tax is withheld and paid every payroll and reported on a quarterly Form 941. This means that the employer can take these credits against the total due on Form 941, and that includes income taxes and the employee portion of FICA too.

THIS MEANS TALK TO YOUR PAYROLL PROVIDER. THEY ARE BE THE COMPANY THAT WILL PROVIDE YOU SPECIFICS ON HOW TO RECORD THIS, AND THEY WILL BE THE ONES THAT ACCOUNT FOR THESE CREDITS ON YOUR FORM 941.

The CARES Act: A $2 Trillion Stimulus Package — This has just been passed by the House this afternoon.

This is the bill that has gained so much attention and has people hopeful that it can help the country with a massive cash infusion. Below are some of the provisions of this bill that we believe will impact most directly our clients:

• • Individual Stimulus Payments — Up to $1,200 for each individual and $500 per child. These get phased out when income is above $75k if you file single or $150k if you file married joint.
  • Small Business Loans (Paycheck Protection Loan) — The government is opening up $350 billion in loans that fall under Section 7 of the SBA. The one garnering the most attention is the Paycheck Protection Loan that can provide a loan of up to 250% of your monthly payroll. It has a ten-year maturity and caps interest at 4%.
  • Loan Forgiveness of the Paycheck Protection Loan — A separate section of the CARES Act calls for a portion of the aforementioned paycheck protection loans to be forgiven on a tax-free basis. The amount to be forgiven is the sum of the following payments made by the borrower during the 8-week period beginning on the date of the loan.
    • There is a provision that reduces the amount that may be forgiven if the employer reduces its workforce during the 8-week covered period when compared to other periods in either 2019 or 2020, or when it reduces salary paid to an employee by more than 25%.
  • Emergency Govt Disaster Loans — They are expanding disaster loans under 7(b)(2) of the SBA to provide more liquidity and easier access that companies can get access to.
  • Individuals under age 59 ½ can withdraw money from their retirement acct without incurring the standard 10% penalty to pay for medical expenses or who experience financial consequences of being quarantined, laid off, or furloughed. You are still required to pay the income tax though on this withdrawal.
  • Employee Retention Credit — A one-year-only credit against the employer’s 6.2% share of Social Security payroll taxes for any business that is forced to suspend or close due to COVID-19 but continues to pay its employees. A business is eligible for this in one of two ways:

1. 1. 1. The operation of the business was wholly or partially suspended during any calendar quarter during 2020 due to orders from an appropriate government authority resulting from COVID-19.
      2. The business remained open, but during any quarter in 2020, gross receipts for that quarter were less than 50% of what they were for the same quarter in 2019. The business will then be entitled to a credit for each quarter until the business has a quarter where it’s recovered sufficiently and that its receipts exceed 80% of what they were for the same quarter in the previous year.

For each eligible quarter, the business will receive a credit against its 6.2% share of Social Security payroll taxes equal to 50% of the “qualified wages” paid to EACH employee for that quarter, ending on December 31, 2020.

If an employer takes out a payroll protection loan described above, they are precluded from this credit.

• • Delay of Payment of Employer Payroll Tax and Self Employment Tax — Delays payment of the employer’s share of the 6.2% payroll tax that would otherwise be due from the date of enactment through 12/31/20 to be paid on 12/31/21 (50%) and the remaining 50% to be paid 12/31/22.
    • If an employer takes out a payroll protection loan described above, they are precluded from this benefit.
  • Changes to NOL Rules — Prior to 2018, NOLs could be carried back two years or forward 20.  The TCJA changed those rules to prevent carryback and made a taxpayer carryforward losses.  This act allows taxpayers to carry 2018, 2019, and 2020 losses back five years for an immediate refund.
  • Temporary and Retroactive Removal of Excess Business Losses — As part of the TCJA, an individual could only use up to $500k of business losses (if married filing joint) to offset other taxable income despite how much flow through losses they had. This act is removing this restriction for 2020 but also retroactive to 2018, and taxpayers who were limited could amend previous returns for a refund.
  • Qualified Improvement Property Fix — Under the TCJA, the drafting accidentally changed the depreciable life of certain real estate improvements from 15 years to 39 years. Assets that have a depreciable life of under 20 years can be fully written off in year placed in service under new bonus depreciation rules. The CARES Act fixes this unintentional drafting error.

Actions to Take Now

TALK TO YOUR BANKERS NOW IF YOU ARE INTERESTED IN THE SBA PAYCHECK PROTECTION LOANS. ALL APPROVED SBA LENDING INSTITUTIONS WILL BE SLAMMED WITH CUSTOMERS WANTING TO TAKE ADVANTAGE OF THIS. START TALKING TO ALL YOUR BANKING RELATIONSHIPS NOW. ONE BANK WILL NOT BE ABLE TO DO MORE THAN ANOTHER. FROM OUR READING OF THE BILL, THE AMOUNT THEY WILL BE ABLE TO LOAN IS A FORMULA, SO THE FIRST BANK THAT CAN HELP IS WHAT YOU ARE AIMING FOR.

The above, while long, is really just a short summary of some key points of the 880-page act. We are happy to see this bill get passed by the House this afternoon and are hopeful that once it officially becomes law, the SBA, DOL, and IRS will quickly start releasing specific guidance. As we find new guidance and support on all of these aspects of the bill, we will continue to provide them to you and update our COVID-19 Resource Center on our website.

Below is an article from Tony Nitti that we have found to be insightful and reliable on the topic.

Please reach out to your team here at MGA with any specific questions so we can continue to try and make the complex simple. Stay safe and healthy, and let’s hope we can all get back to normal soon!