In this article, we have tried to provide insight into to some of the Covid-19 relief measures that the US government has offered to its citizens and small businesses.  It is important for you to have a timely understanding of the benefits on offer in order to claim any of these.

1.     Paycheck protection program (PPP) SBA loan:
Employee Payroll is considered a significant expense and a dire need for most businesses in the current scenario to stay afloat.  The US congress as activated the PPP loan program for all types of businesses such as C-corps, S-corps, LLC, Sole proprietorships or Independent contractors (all having fewer than 500 employees)  A business entity shall be eligible for 2.5 times its Monthly cost of payroll, health insurance and retirement benefits.  This is however restricted to US$ 100,000/- per employee.  The SBA does not seek any collateral or personal guarantee, but only conditions application of 75% of such loan towards payroll and the balance towards rents, mortgage payments and utilities. If these are complied with, the entire loan shall be forgiven and it won’t be treated as your income either.

2.     Economic injury disaster loan (EIDL) SBA loan:
A Small business can directly apply with the SBA for an EIDL loan if it has been impacted by this pandemic. One can borrow up to US$ 2 Million at concessional interest rates [3.75% p.a. (2.75% p.a. for non-profits)] and the interesting thing is that these interest rates shall remain fixed for the entire tenure of your loan (tenures can be a maximum of 30 years).  Such loan can be used towards payment of debts, working capita including payroll and account payables, paying of existing business debts or for expansion.  However, the EIDL loan will not be forgiven and it requires 20% of the business owner to give a personal guarantee (but no lien on any personal property will be taken).  A business that is impacted must opt for both PPP & EIDL loan and just by applying, if eligible, you can instantly get a US$ 10,000/- grant from the government.

3.     US$ 5,000 per Employee for Businesses:
If the impacted businesses do no fire employees and put them on a furlough or employ them again as soon as possible, the business entities will get US$ 5,000/- per employee as a retention credit which is 50% of the payroll on the first US$ 10,000/- of the employee’s salary.  Businesses opting for PPP will not get this credit.

4.     SBA Loan forbearance:
For a small business having an extant SBA loan, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) requires the government to automatically pay the EMIs for over next six months starting April 1, 2020.  The best part is you don’t have to declare the free payments as your income.

5.     Extra time for payment of Employer taxes:
Small business owners can also defer payment of the employer share of the social security taxes, by paying half by December 31, 2021 and the balance half by December 31, 2022.

6.     Tax refunds for Net Operating losses (NOL):
NOL are currently restricted by the taxable income limitation and cannot be carried back to reduce taxes of any prior taxable year.  The new CARES Act provides relief by removing the taxable income limitation and so now the NOL arising in a tax year beginning 2018 till 2020 may be carried back Five years to offset against the income fully.  A business should check its returns from 2013 and check out for a refund by utilizing the losses and revising the returns.

7.     Jackpot for Real estate investors:

One could use real estate depreciation to offset up to US$ 500,000/- in capital gains in a year. This limit has now been scrapped and kept unlimited for the years 2018 to 2020.  This means one can revise his/her 2018 & 2019 returns to take benefit of a refund.

8.     Emergency Paid Sick Leave (EPSL)
Small businesses, with less than 500 employees, must provide sick leaves, for up to two weeks, to their qualified employees under the Families First Coronavirus Response Act (FFCRA).  So qualifying employees are such as those who cannot work or telework as a result of stay at home orders or doctors’ directives or they are caring for any person or for children whose school is closed due to the epidemic.  The federal government shall pay for it via payroll tax credits.

9.     Family Medical Leave (FML) 10 weeks leave:
One can opt for a 10 weeks of paid leave at 2/3^rd of his or her regular pay with limits and the employer shall be reimbursed by a reduction in the total payroll taxes the employer has to pay.  This FML leave is eligible for only such employee who cannot work/telework due to the need to care for the employee’s minor child due to the child’s school or place of child care being closed.

10.  Section 139 – Tax free deductible expenses
As a result of the contagion, an employer can pay its workers/employees to cover for reasonable and necessary personal, family, living expenses incurred.  Reimbursable expenses could include unreimbursed medical expenses, funeral expenses, increased utilities, home office expenses such as internet, computers, laptops, printers, office supplies and any increased child care expenses.

11.  US$ 1,200/- Checks!
A direct payment of US$ 1,200/- per adult and US$ 500 per child (under age 17) shall be sent to individuals making less than US$ 75,000/- per annum (or US$ 150,000/- per annum in case of married couples).  No grants for individuals earning US$ 99,000/- per annum (or US$ 198,000/- per annum in case of married couples).  The cash grants will be based on one’s 2018 or 2019 tax filings.  A Non-resident not holding a Social security number (SSN) shall however not be eligible for such a grant.  H-1 & L-1 visa holders shall be eligible for such grants as they are considered residents for tax purposes and pass the more than 183 days stay test in US.  However, their spouses who do not have an SSN will not be eligible.

12.  Unemployment Benefits:
The state unemployment benefits that are restricted for 26 weeks have now been extended to 39 weeks, along with an additional US$ 600 per week for four months by the federal government.  As an exception this time, the unemployment benefits are also extended to contract workers, freelancers, Uber drivers, other self-employed workers, who otherwise aren’t eligible.  Kindly be informed that all unemployment benefits are taxable.  People on furloughs or whose work hours or jobs are reduced can also apply for these benefits.

13.  Retirement savings:
One doesn’t need to break his or her retirement fund unless it is absolutely essential to. But if you do need to, you can now borrow up to US$ 100,000/- from your retirement savings without the 10% penalty and repay it back in equal instalments over five years @5.25% rate of interest.  You can take a penalty free early distribution of up to US$ 100,000/- and return it later if you want to or keep it.  The required 2020 mandatory distributions have been suspended for people over 72 years of age.

14.  Credit reporting:
The lenders have been mandated to not report to credit agencies, borrowers who are struggling in case their loans have to be deferred or loan payments are skipped.

15.  Student Loans:For anyone owing a federal student loan, he or she can suspend their monthly payments up to September 30, 2020 without the interest accruing. Also, your employers can make tax deductible contributions of up to US$ 5,250/- towards your student loan payment this year.  Such employer’s contributions will not be treated as your income.

16.  Tax filing & payment deadlines extended:
IRS and most state governments have extended the tax return filing deadlines from April 15, 2020 to July 15, 2020.  Any tax instalments due to IRS after April 1, 2020 are now due on July 15, 2020.

17.  IRA Contribution deadline extended:
The IRS has announced a 90 day extension to make your IRA contributions for 2019, up to US$ 6,000/- (or US$ 7,000/- if above 50 age), until July 15, 2020.

18.  Charitable contributions deduction limitation removed:
The adjusted gross income limitation on charitable contributions is suspended for 2020.  So higher charitable contributions shall be tax deductible.

19.  H1 visa, L1 visa, Green cards, I9s have reliefs:
Such people can work from home, LCAs can be posted at home, I9 physical presence rule have been extended.  DOL is allowing extension of time for filing PERM applications. USCIS will be flexible with deadline and condone delays.

20.  Cancellation of Contracts:
Force Majeure helps free parties to a commercial contract from their obligations if any unforeseen event occurs leading to delays and enforcing inability to perform or fulfil the contract e.g. the Covid-19 pandemic. But one must show that it is absolutely impossible to perform under the contract. Doctrines of commercial impracticability or frustration of purpose could be applied too for non-performance.

21.  Vet your Insurance:
Small businesses must evaluate how their operations and revenue have been impacted and analyse whether any of their business insurance policies cover for their losses e.g. business interruption, commercial general liability, directors and officers, errors and omissions and workers compensation.
For any queries feel free to write to info@gjmco.in