During these difficult times, every government is doing whatever it can, both on the medical and economic front to shore up the nation as best as it can. The impact of lockdown measures is severe on economic activity across the globe. Only the most essential functions are being maintained. Obviously this will cause loss of employment and income and adversely affect individuals and families everywhere. In a bid to shore up flailing economies, governments have come up with various support programs. The US government, in particular, has rolled out various programs to help the citizens of the country get through this difficult phase.
Major Relief Measures for Business
- Paycheck Protection Program (PPP):
For most small businesses, payroll is their biggest expense. The Paycheck Protection Program is a loan that is formulated as an incentive for small businesses to keep employees on their payroll. The PPP is a loan 2.5 times the average cost of a company’s monthly payroll, health insurance, and retirement benefits. 75% of the loan proceeds must be used for payroll and balance may be used for rent, mortgage, and other expenses. If 75% of the loan amount is used as specified, the entire loan will be forgiven. And what is better – the forgiven loan will not be treated as “Forgiveness of debt” income. This program is open to eligible businesses with lesser than 500 employees.
- SBA Economic Injury Disaster Loan (EIDL):
In order to help businesses overcome the economic burden arising out of the disaster, the SBA (Small Business Administration) provides a loan of up to $2 million at an interest rate of 3.75% (2.75% for non-profit organizations). These loans are repayable over a period of 30 years. The loans under this scheme may be used for any purpose such as working capital requirements such as payroll payments, fixed debts, accounts payable, etc, but may not be used for lost sales or profit or for expansion of business or such other similar expenses. In order to obtain this loan, 20% or more of the owners must give a personal guarantee. The SBA also grants $10,000 just when you apply for the loan.
- Medium-sized business loans:
The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act was signed into law on March 27, 2020, to provide low-interest rate loans (Interest at 2%) to Medium Sized Businesses with employees between 500 and 10,000. The loan is provided under the condition that 90% of the workforce must be retained with full salary and benefits through September 30, 2020.
- Large Sized business loans:
For businesses with more than 10,000 employees, loans are granted to companies that have suffered losses as a result of the Coronavirus. The loan will be at the market rate for a term not exceeding 5 years with the condition that more than 90% of the workforce is maintained until September 30, 2020.
- Apart from this, the US government has rolled out various other plans to help business houses get out of this crisis such as providing a credit of up to $5,000 on 50% of payroll on the first $10,000 of compensation of an employee. However, this benefit cannot be claimed if PPP has been availed.
- For existing SBA loans, the government will pay the interest and principal for a period of 6 months beginning April 1, 2020, and this does not have to be reported as income either.
- Social Security Taxes forms a major portion of the payroll taxes. The government has provided extended time for employers to pay this portion in two phases. Half of the amount to be paid before December 31, 2021, and the balance on or before December 31, 2022. This will ensure that the working capital is available for alternative use.
- The tax law has been modified to provide a carryback for Net Operating Losses (NOL) for the years 2018, 2019, or 2020 and can be carried back for a period of 5 years.
Individuals and Employees
- The government will provide $1,200 to all adults and $500 per child for individuals in specific income groups.
- Lenders are instructed to allow deferment of payment and not to report the deferment to the credit agencies to prevent any impact on individual credit rating.
- As a benefit to students, federal student loan repayments are deferred until September 30, 2020.
Due Date Extensions
Various due dates have been extended to provide relief to the taxpayers. The due dates for filing of return of income have been extended till July 15th, 2020 and the due date for payment of IRA contribution has also been extended till July 15th, 2020.
Desperate times require strong measures and the slew of economic support measures announced will hopefully go a long way in helping resume economic activity once the lockdown and stay at home orders are lifted.
