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On March 27, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, providing approximately $2 trillion in aid to individuals and businesses throughout the country and authorizing $349 billion in forgivable loans from the Small Business Administration.

Associated Builders and Contractors applauded its passage, calling it a lifeline for businesses.

Construction employers are encouraged to consult with their accountants and financial advisers on how best to apply the new payroll and tax provisions for their operations.

Paycheck Protection Program

The Paycheck Protection Program (PPP) provides eight weeks of cash-flow assistance through 100% federally guaranteed loans to small employers that maintain their payroll during the crisis. If the employer maintains payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent and utilities would be forgiven, helping workers to remain employed and small businesses to recover.

Small businesses and sole proprietorships apply for loans under the federal PPP on April 3. Starting April 10, independent contractors and self-employed individuals can apply. PPP loans must be made during the period prior to June 30, 2020. (The PPP is retroactive to Feb. 15, 2020, to help bring workers who may have already been laid off back onto payrolls.) 

 The bill defines eligibility for these loans as a small business, 501(c)(3) nonprofit, a 501(c)(19) veteran’s organization or Tribal business concern described in section 31(b)(2)(C) of the Small Business Act with not more than 500 employees or the applicable size standard for the industry as provided by SBA, if higher. It also includes sole-proprietors, independent contractors and other self-employed individuals as eligible for loans and allows businesses with more than one physical location that employs no more than 500 employees per physical location in certain industries, mainly franchise and food services, to be eligible.

The bill requires eligible borrowers to make a good faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19; that they will use the funds to retain workers and maintain payroll, lease and utility payments; and are not receiving duplicative funds for the same uses from another SBA program. 

PPP Loans

PPP loans can be as large as 250% of a business’s average monthly payroll costs over the last 12 months; however, the maximum loan amount under this program is $10 million through Dec. 31, 2020. It also specifies allowable uses of the loan to include payroll support, such as employee salaries, paid sick or medical leave, insurance premiums and mortgage, rent and utility payments.

PPP loans are made by SBA-certified lenders (over 800 financial institutions currently), in all 50 states, through delegated authority from the SBA. In addition, the SBA Administrator and Secretary of Treasury may further authorize additional lenders to join the program, as needed. SBA-certified lenders simply need to verify that a small business was in operation on Feb. 15, 2020, and paid employee salaries and payroll taxes or paid independent contractors, as reported on Form 1099-MISC, for eligibility in the PPP.

Loan Forgiveness

Principal amounts on PPP loans, for the first eight-week period from when the PPP loan is made, may be forgiven, if loan funds are used to cover payroll costs, interest payments on mortgages (not including prepayments or principal), rent and utilities.

The amount of a PPP loan that may be forgiven cannot exceed the principal amount of the loan. The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25% of the prior year's compensation. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that rehire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

Tax Provisions

 The law includes tax provisions that will help businesses maintain liquidity through this national crisis.

Retention Tax Credit. Creates a refundable payroll tax credit for 50% of wages paid by employers to employees during the COVID-19 crisis.

  • Qualifying employers are those whose (1) operations were fully or partially suspended, due to a COVID-19-related shutdown order, or (2) gross receipts declined by more than 50% when compared to the same quarter in the prior year. 
  • For employers with greater than 100 full-time employees, qualified wages are wages paid to employees when they are not providing services due to the COVID-19-related circumstances described above. 
  • For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit, whether the employer is open for business or subject to a shutdown order. 
  • The credit is capped at $10,000/quarter per employee, including health benefits paid. 
  • The credit is provided for wages paid or incurred from March 13, 2020 through Dec. 31, 2020. 

Delay of payment of employer payroll taxes. Payment will be due over the course of two years with half due on Dec. 31, 2021, and the balance due on Dec. 31, 2022.

  • Modification for net operating losses (NOL). This provision will allow five-year carryback for 2018, 2019 and 2020 tax years, respectively.
  • Modification of limitation on losses for taxpayers other than corporations. The 80% carryback limitation will be lifted for pass-through entities to harmonize with corporate NOL treatment for 2018, 2019 and 2020.
  • Modification of credit for prior year minimum tax liability of corporations. This will accelerate the ability of companies to recover AMT credits in the form of refunds.
  • Modification of limitation on business interest. This will loosen the limitation on interest deduction to 50% of EBITDA for 2019 and 2020. 
  • Technical amendments regarding qualified improvement property (QIP). This fix to the so-called “retail glitch” will unlock $15 billion in liquidity for QIP expenses incurred by hard-hit sectors such as restaurants, hotels and retail, among others.

 

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