U.S. Government officials have pledged that a multi-tiered stimulus package will be enacted in the coming days to combat the effects of the COVID-19 pandemic on businesses. Current relief options for small business and corporate clients are limited. This memorandum from ELPO Law summarizes the relief now available and the compliance required by employers in response to recent legislation.
I. AVAILABLE RELIEF
The following actions have been taken to offer immediate relief to businesses affected by the COVID-19 outbreak:
1. Low-interest loans backed by SBA. On Friday, March 20, the U.S. Small Business Administration approved Kentucky’s application for an economic injury disaster loan declaration available to businesses throughout the state. As a result, Kentucky small businesses that are affected by the COVID-19 pandemic can apply for economic injury disaster-assistance loans up to $2 million that will be backed by SBA. If the business is considered a major source of employment, the $2 million limit can be waived.
The interest rate will be a maximum of 3.75% for small businesses and 2.75% for nonprofits, with a maximum loan term of 30 years. The interest rate is determined by formulas set by law and is fixed for the life of the loan. Loan terms are determined on a case-by-case basis, but businesses with credit available elsewhere are not eligible.
Eligible businesses include small businesses, small agricultural cooperatives, small businesses engaged in aquaculture, and most private, non-profit organizations of all sizes.
The loans can be used for a variety of business expenses including to compensate for short-term lost revenue, pay debt, payroll, accounts payable and other bills. The loans cannot be used to refinance long-term debt.
The following credit requirements apply:
a. Credit History – Applicants must have a credit history acceptable to SBA.
b. Repayment – Applicants must show the ability to repay the loan.
c. Collateral – Collateral is required for all economic injury disaster-assistance loans over $25,000. SBA takes real estate as collateral when it is available. SBA will not decline a loan for lack of collateral, but SBA will require the borrower to pledge collateral that is available.
The loan process is initiated by an eligible business filing an application with SBA online or by telephone. Applicants may apply online, receive additional disaster assistance information and download applications at https://disasterloan.sba.gov/ela. Applicants may also call SBA’s Customer Service Center at (800) 659-2955 or email email@example.com for more information.
2. IRS Tax Filing and Payment Deferral. The IRS and Treasury Department announced on Saturday, March 21, that the federal income tax filing due date is automatically extended from April 15, 2020, to July 15, 2020. Taxpayers can also defer federal income tax payments due on April 15, 2020, to July 15, 2020, without penalties and interest, regardless of the amount owed. This deferment applies to all taxpayers, including individuals, trusts and estates, corporations and other non-corporate tax filers as well as those who pay self-employment tax.
This deferment also applies to tax year 2020 estimated tax payments previously due on April 15, 2020.
Kentucky delayed the state tax filing and payment deadline to the mirror the federal extension (KY Executive Order issued on March 20).
3. Refundable Payroll Tax Credits. Under the Families First Coronavirus Response Act (the “Act”) signed into law on March 18, small and midsize employers can begin taking advantage of two new refundable payroll tax credits, designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related leave to their employees. These tax credits are available to all businesses with fewer than 500 employees. Alternative tax credits are available for certain self-employed individuals, including independent contractors and gig-employees.
The Act mandates employers with fewer than 500 employees to provide leave to employees for certain COVID-19 related reasons, and the tax credits are intended to offset the impact of the leave requirements on employers. Employers must increase their annual gross income by the amount of payroll credit received.
The Act’s compliance mandates for employers are outlined in Section II of this Memorandum. The key takeaways for the tax credits are as follows:
a. Paid Sick Time Payroll Tax Credit: The paid sick time payroll tax credit can be claimed on a quarterly basis, equal to 100 percent of the amount of sick leave wage paid. The credit is limited to $511 per day ($5,110 total) if an employee is taking time off to care for themselves or $200 per day ($2,000 total) if the sick leave is to care for an individual who is quarantined or showing symptoms of COVID-19 or a minor child whose school is closed. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
b. Family Wage Credit for Employer’s Share of Payroll Tax: For employers who pay family leave wages under the Act, a separate payroll tax provision allows a 100 percent credit against the employer’s share of the payroll tax for each employee, limited to $200 per day, or a total of $10,000 per employee. The credit is refundable if it exceeds the amount the employer owes in payroll tax.
c. Credits for Sick and Family Leave for Certain Self-Employed Individuals: Under the Act, certain self-employed workers can claim a credit against their regular income taxes related to sick or family leave, including independent contractors and gig workers. The credit covers 100 percent of self-employed individuals’ daily self-employment income or 67 percent of qualified wages if an individual is taking care of a child whose school is closed. The per-day amount is limited to the lesser of an individual’s average daily self-employment income, or $511 per day if caring for themselves or $200 if caring for a minor child. There’s also a refundable tax credit for family leave for self-employed individuals equal to 100 percent of qualified family leave wages.
The number of eligible days is limited to 10 if related to sick leave and 50 if related to family leave. The Act directs the U.S. Treasury Department to provide guidance on what documentation self-employed individuals must submit to claim the credit.
d. Complete Coverage: Employers receive 100 percent reimbursement for paid leave pursuant to the Act.
i. Health insurance costs are also included in the credit.
ii. Employers face no payroll tax liability.
iii. Self-employed individuals receive an equivalent credit.
e. Fast Funds: U.S. government pledges reimbursement will be quick and easy to obtain.
i. An immediate dollar-for-dollar tax offset against payroll taxes will be provided.
ii. Where a refund is owed, the IRS will send the refund as quickly as possible.
f. Small Business Protection: Employers with fewer than 50 employees are eligible for an exemption from the requirements to provide leave to care for a child whose school is closed, or child care is unavailable in cases where the viability of the business is threatened.
g. Easing Compliance: Requirements subject to 30-day non-enforcement period for good faith compliance efforts.
h. Recommendation: Employers should maintain detailed documentation of the time spent by employees for virus testing, medical care, school closures and relevant information of affected family members, while also protecting employee privacy.
To take immediate advantage of the paid leave credits, businesses can retain and access funds that they would otherwise pay to the IRS in payroll taxes. If those amounts are insufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS by submitting a streamlined claim form that will be released next week. Additional information is available on the Coronavirus Tax Relief page on IRS.gov.
II. EMPLOYER MANDATES UNDER FAMILIES
FIRST CORONAVIRUS RESPONSE ACT
The Families First Coronavirus Response Act (the “Act”), signed into law March 18, significantly impacts employers’ duties to provide sick and family leave for employees affected by the COVID-19 pandemic. Key components of the Act include:
1. Covered Employers: Generally, private-sector employers with fewer than 500 employees will be subject to the Act’s mandates; however, employers that employ health care providers or emergency responders are excluded.
a. Small Business Exemption: Additionally, the Department of Labor will have the authority to exempt employers with less than 50 employees if complying with these changes would jeopardize the viability of the business. The Department of Labor is expected to issue regulations related to this exemption in April 2020. The U.S. Treasury is expected to use its regulatory authority to advance funds to some small businesses to cover the cost of providing paid sick leave.
2. Eligible Employees: All employees of covered employers are eligible for two weeks of paid sick time for specified reasons related to COVID-19 (special rules apply for healthcare providers and emergency responders). Employees employed for at least 30 days are eligible for up to an additional 10 weeks of paid family leave to care for a child under certain circumstances related to COVID-19.
3. Leave Requirements: The Act requires that companies provide the following leave for eligible employees:
a. Two weeks (up to 80 hours) of paid sick time at the employee’s regular rate of pay where the employee is unable to work because the employee is quarantined (pursuant to Federal, State, or local government order or advice of a health care provider), and/or experiencing COVID-19 symptoms and seeking a medical diagnosis; or
b. Two weeks (up to 80 hours) of paid sick time at two-thirds the employee’s regular rate of pay because the employee is unable to work because of a bona fide need to care for an individual subject to quarantine (pursuant to Federal, State, or local government order or advice of a health care provider), or to care for a child (under 18 years of age) whose school or child care provider is closed or unavailable for reasons related to COVID-19, and/or the employee is experiencing a substantially similar condition as specified by the Secretary of Health and Human Services, in consultation with the Secretaries of the Treasury and Labor; and
c. Up to an additional 10 weeks of paid family leave at two-thirds the employee’s regular rate of pay where an employee, who has been employed for at least 30 calendar days, is unable to work due to a bona fide need for leave to care for a child whose school or child care provider is closed or unavailable for reasons related to COVID-19.
4. Qualifying Reasons for Leave: Under the Act, an employee qualifies for paid sick time if the employee is unable to work (or unable to telework) due to a need for leave because the employee:
a. is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
b. has been advised by a health care provider to self-quarantine related to COVID-19;
c. is experiencing COVID-19 symptoms and is seeking a medical diagnosis;
d. is caring for an individual subject to an order described in 4(a) above or self-quarantine as described in 4(b) above;
e. is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
f. is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
Under the Act, an employee qualifies for expanded family leave if the employee is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19.
5. Duration of Leave:
a. For qualifying reasons described in 4(a-d, f) above:
A full-time employee is eligible for 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period.
b. For caring for a child whose school or place of care is closed (as described in 4(e) above):
A full-time employee is eligible for up to 12 weeks of leave (two weeks of paid sick leave followed by up to 10 weeks of paid expanded family & medical leave) at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period.
6. Calculation of Pay:
a. For leave qualifying under reasons described in 4(a-c) above:
Employees taking leave are entitled to pay at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period).
b. For leave qualifying under reasons described in 4(d, f) above:
Employees taking leave are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period).
c. For leave as described in 4(e) above:
Employees taking leave are entitled to pay at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $12,000 in the aggregate (over a 12-week period).
Wages paid under this provision are exempt from the employer’s portion of Social Security tax, and an additional payroll tax credit is allowed in the amount of Medicare tax paid on those wages.
7. Employer Cautionary Considerations:
a. The Act prohibits discrimination and retaliation against employees who utilize this leave, and employers may not require employees to find replacements for them while they are out on leave.
b. Employers may not require that employees use other leave provided to them prior to using leave under this Act.
c. Employers must post a notice in conspicuous places on the premises. The Secretary of Labor must make a notice available by March 25.
d. If an employer fails to comply, it will be considered to have violated minimum wage laws under the Fair Labor Standards Act (“FLSA”) and may be subject to those penalties.
e. If an employer terminates an individual for taking leave or reporting issues, it will be subject to FLSA penalties as well.
8. Effective Dates of Act: The Act takes effect on or before April 2, 2020, and most provisions are set to expire on December 31, 2020. Source: U.S. Department of Labor
III. Additional Relief Expected
Additional legislation intended to offer businesses and individuals economic support to combat the effects of the COVID-19 pandemic is expected to be passed this week, as Congress continues work on the proposed Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).
Current proposals from the U.S. Senate bill include:
1. Small Business Interruption Loans and Loan Forgiveness: $350 billion allocated for Small Business Interruption Loans, which are meant to help small businesses with fewer than 500 employees impacted by the pandemic make payroll and cover other expenses. If passed, this will allow small businesses to take out loans up to $10 million and cover employees making up to $100,000 per year. The loans will be forgiven if the business does not lay off its employees (forgiveness is scaled down as layoffs rise).
In order to be eligible for a loan, a firm must maintain an average monthly number of employees during the covered period that is no less than the number it had before the crisis began. Firms that have laid off employees may qualify for forgiveness if employees are rehired by April 1, 2020.
2. Recovery rebate for individual taxpayers: The bill would provide a $1,200 refundable tax credit for individuals ($2,400 for joint taxpayers). Unlike the previous version of the bill, the credit has no minimum qualifying income requirements and no phase-in. The rebate phases out at $75,000 for singles, $112,500 for heads of household, and $150,000 for joint taxpayers at 5 percent per dollar of qualified income, or $50 per $1,000 earned.
ELPO Law will continue to monitor the issues affecting businesses and individuals related to the COVID-19 pandemic.
For questions, contact English, Lucas, Priest & Owsley, LLP at 270-781-6500.