CARES Act: What Does it Mean For Your Business?

Protecting your business during coronavirus

Businesses are feeling the effects of the lockdowns across the country, and the CARES Act recently passed by Congress is looking to provide assistance to those businesses as they attempt to stay afloat during this period. Below are the key takeaways from the measures put in place by CARES:

Self-employed, sole proprietors and independent contractors now eligible for Unemployment

The CARES Act makes unemployment compensation benefits available for self-employed workers, independent contractors, those with limited work history, and others who would traditionally be ineligible for benefits and are unable to work as a direct result of the coronavirus public health emergency.

Small business relief for maintaining payroll:

Under the CARES Act, businesses with up to 500 employees that keep employees on the payroll while workers are forced to stay home would be eligible to receive up to 8 weeks of financial assistance. Small businesses would get loan guarantees through the SBA Economic Injury Disaster Loans (EIDL) or expanded 7(a) Program loans, called the Payroll Protection Program. Employers can qualify to have a certain amount of these 7(a) loans forgiven with no tax consequences based upon their spending.

Grants of up to $10,000:

Emergency grants are available as part of the SBA’s EIDL program. The SBA must distribute EIDL emergency grants within 3 days of a business applying for the grant. Applicants are not required to repay emergency grants, even if they are ultimately denied access to the EIDL program

Payroll tax deferrals:

Certain employers and self-employed individuals can defer payment of the employer share of the Social Security tax on employee wages. Any deferred employment tax must be paid over the following two years, with half of the amount required to be paid by December 31, 2021, and the other half by December 31, 2022.

Payroll tax credit:

Under the CARES Act, employers receive a refundable payroll tax credit for 50% of wages paid to employees during the COVID-19 crisis. The credit would be available to employers as follows:

• Operations were fully or partially suspended, due to a COVID-19 related shutdown order, or
• Gross receipts declined by more than 50% when compared to the same quarter last year.

The credit would be provided at 50%  for the first $10,000 of compensation, including health benefits, paid to an eligible employee. The credit is for wages paid or incurred from March 13, 2020, through December 31, 2020, and therefore would be a maximum of $5,000 per eligible employee.

Penalty-free withdrawals from retirement accounts:

The Act creates a new emergency retirement plan distribution option dubbed the “coronavirus related distribution,(“CRD”). Small business owners can use this money from retirement accounts to help them through the COVID crisis while waiting on another form of assistance. A CRD can be drawn from an employer-sponsored retirement plan such as a 401(k) or from individual retirement accounts (IRAs), in any amount up to $100,000. The normal 10% penalty tax on early plan distributions by the Internal Revenue Service (IRS) is waived.

The individual taking a CRD can also spread the reported income over three years for tax purposes or distribution can be repaid within three years to avoid individual taxes.If you are a small business owner or employee and want to know more about financial assistance available to you in the CARES Act, LegalShield's small business plan provides you access to lawyers with the knowledge to guide you through these rough times.