Small Business ss Relief: Answering ng Your ur Questions ns - PowerPoint PPT Presentation

Small Business ss Relief: Answering ng Your ur Questions ns

Featuring Fe Josh Caron Armstrong Robinson Ken Kies AVP of Political Affairs VP of Legislative Affairs Managing Director AALU/GAMA AALU/GAMA Federal Policy Group

C19 – Relief Resour urces for Small Busine nesses • “Phase 3 Bill” = $ 2.2 Trillion Bridge Loan to the American Economy • Creates multiple avenues for relief to businesses, individuals, and families • Details and updates from the government daily – stay tuned to the Covid-19 Action Center

REVIEW: Relief ef for Employer ers 1. Delay Employer Payroll Taxes 2. SBA Loans for Small Business 3. Employee Retention Credit 4. Short-term comp program 5. NOL 6. Sick Leave Requirements and Resources 7. Q&A

Delay Employer Payrol oll Taxes • The bill allows employers and self- employed individuals to defer payment of their share of the 6.2% Social Security tax they otherwise pay from 3/27/2020 through 12/31/2020. [no one makes more than $137,000/year] • Those deferred taxes would be repaid over the next two years, with half required by 12/31/2021 and the other half by 12/31/2022. • No dollar cap on the amount deferred. • Note : A small business or individual receiving loan forgiveness under the Paycheck Protection Program is barred from delaying their payroll taxes.

Small Business Administration Resources • Small Business Loan Relief. SBA will pay all principal, interest, and fees on all pre- existing SBA 7(a) loan products for six months to provide economic relief. It excludes PPP loans. • Paycheck Protection Program (PPP) – up to $10 million • Treasury and SBA have issued new guidance to get the loans up and running by Friday, April 3, 2020 • New Federal guidance limits the use of the loan forgiveness to 25% for non-payroll costs • Economic Injury Disaster Loans (EIDL) – up to $2 million • Note: A small business may receive both PPP and EIDL loans, however, the funds must be used for different purposes.

SBA: Eligibility • Small business or non-profit with 500 or fewer employees • Sole proprietor, LLC, C-Corp, S-Corp, Independent contractors, Coops, ESOPs • If more than 500 employees – look to the NAICS Code definitions of small businesses (link in AALU/GAMA materials in the action center) • Entity must be located in the U.S. || Only U.S. based employees count for calculations • If SBA does not work – then look to the Treasury Exchange Stabilization Fund

SBA: Payrol oll Protection on Plan • The program is designed for small businesses to preserve employees’ salaries. • Creating a new $350 billion program in SEVEN days. • Trying to cram a tidal wave through a pinhole! (last year the SBA 7(a) program lent out $23 billion) • Borrower Guidance v. Lender Guidance • Apply for the loan -> Spend on Eligible Expenses -> Apply for forgiveness • Things will change – important to stay connected to the Action Center

SBA: Payrol oll Protection on Plan • Up to $10 million; 6/12 month deferral of first payment; payable over 2 years; 1% || 8 weeks forgivable – income tax free • Loans could equal up to 250% of average monthly total payroll costs incurred during the year prior. • Payroll costs exclude any compensation in excess of $100,000 for any individual. • Payroll costs include: salary, commissions, PTO, group health benefits including insurance premiums, retirement benefits, state or local tax on comp. Can include owner comp up to the limits. • Your ICs do not count for your business calculation || they can make their own application • A business can bring back previously furloughed employees by 6/30/20 • The PPP loan can function much like a grant given that it can be fully or partially forgivable. (8 weeks). No federal income tax is owed on that forgiveness. • Eligibility: Employers with fewer than 500 employees or meet the the NAIC designation, including 501(c)(3), sole proprietors, independent contractors. (incl. franchisees with < 500 per location) • Apply – • First – contact your bank and ask about their 7(a) / PPP program • Second - SBA.gov has lender matching tools available

SBA: PPP Examp mple 1 C Corporation 1 • 5 employees (i.e., W-2s), each making, respectively, $50,000, $75,000, $75,000, $100,000, and $200,000 per year, for a grand total of $500,000 in compensation paid for period one-year prior • Covered rent, covered leased equipment, and covered utilities total $1,750 per week Answer: “Payroll costs” = all compensation paid (as limited by $100,000 cap) Max loan amount = ($400,000 / 12) x 2.5 = $83,333.33 Max forgiveness = (($400,000 / 52) x 8) + ($1,750 x 8) = $75,538.46

SBA: PPP Examp mple 2 C Corporation 2 • 3 employees (i.e., W-2s), each making, respectively, $50,000, $75,000, and $200,000 per year • 2 independent contractors (i.e., 1099s), each making, respectively, $75,000 and $100,000 per year, for a grand total of $500,000 in compensation paid for period one-year prior • Covered rent, covered leased equipment, and covered utilities total $1,750 per week Answer: “Payroll costs” = only compensation paid to employees (as limited by $100,000 cap). The independent contractors are eligible for their own PPP loans, and do not factor into the company’s loan . Max loan amount = ($225,000 / 12) x 2.5 = $46,875 Max forgiveness = (($225,000 / 52) x 8) + ($1,750 x 8) = $46,875 (Note the impact of the overall limitation on loan forgiveness equal to the max loan amount)

SBA: PPP Examp mple 3 C Corporation 3 • 3 employees (i.e., W-2s), each making, respectively, $50,000, $75,000, and $200,000 per year • 2 statutory employees (i.e., 1099s) who are not common law employees, each making, respectively, $75,000 and $100,000 per year, for a grand total of $500,000 in compensation paid for period one-year prior • Covered rent, covered leased equipment, and covered utilities total $1,750 per week Answer: “Payroll costs” = only compensation paid to employees (as limited by $100,000 cap). The statutory employees are eligible for their own PPP loans, and do not factor into the company’s loan . Max loan amount = ($225,000 / 12) x 2.5 = $46,875 Max forgiveness = (($225,000 / 52) x 8) + ($1,750 x 8) = $46,875 (Note the impact of the overall limitation on loan forgiveness equal to the max loan amount)

SBA: PPP Examp mple 4 Business Owner who is a Sole Proprietor, Self-employed, or Independent Contractor • No employees • Pays two unrelated independent contractors (i.e., 1099s), each making, respectively, $75,000 and $100,000 per year • Net income of $325,000 for period one-year prior • Covered rent, covered leased equipment, and covered utilities total $1,750 per week Answer: “Payroll costs” = only that portion of the business owner’s income as is below the $100,000 cap. The unrelated independent contractors are eligible for their own PPP loans, and do not factor into the business owner’s loan. Max loan amount = ($100,000 / 12) x 2.5 = $20,833.33 Max forgiveness = (($100,000 / 52) x 8) + ($1,750 x 8) = $20,833.33 (Note the impact of the overall limitation on loan forgiveness equal to the max loan amount)

SBA: PPP Examp mples The following scenarios require certain inferences from the statutory language, regulations, and guidance from the SBA. New guidance will be coming out on a rolling basis and we will update our materials as conditions warrant. Additional guidance is expected specifically on independent contractors by the end of this week.

SBA: PPP Examp mple 5 Business Owner who is a Statutory Employee • No employees • Pays two unrelated independent contractors (i.e., 1099s), each making, respectively, $75,000 and $100,000 per year • Receives $100,000 as a statutory employee of a different business, and has net income of $225,000 for period one-year prior • Covered rent, covered leased equipment, and covered utilities total $1,750 per week Answer: “Payroll costs” = only that portion of the business owner’s total income (i.e., both the “W - 2 income” received as statut ory employee and also the “Schedule C,” “1099,” or “K - 1” income from the independent business) as is below the $100,000 cap. The unrelated independent contractors are eligible for their own PPP loans, and do not factor into the business owner’s loan . Max loan amount = ($100,000 / 12) x 2.5 = $20,833.33 Max forgiveness = (($100,000 / 52) x 8) + ($1,750 x 8) = $20,833.33 (Note the impact of the overall limitation on loan forgiveness equal to the max loan amount)

SBA: PPP Examp mple 5 - more Further thoughts on Example 5: • Open issue here is that it is not precisely clear how to treat statutory employees under the statute • It is likely, however, that a statutory employee who is not a common law employee is treated just as any other independent contractor would be (i.e., subject to the wages cap, the statutory employee takes into account as “payroll costs” both his or her “W - 2 income” and also his or her other business income) • High degree of confidence in the result