Nearly every small business—3 out of 4—say they are being negatively affected by COVID-19 in some way. Given the unprecedented reach of the virus, and the reaction too it, that statistic is hardly surprising. But the attempts to help business owners are unprecedented, too. By now, you’ve heard about the $2 trillion stimulus package, called the Coronavirus Aid, Relief, and Economic Security (or CARES) Act. But your focus may have been one of its most popular provisions: the Paycheck Protection Program. However, the CARES act did more to help business owners.
Paycheck Protection Program
This provision is the most popular part of the CARES Act for a reason—it provides potentially forgivable loans to small business owners to help them get through the more acute phases of COVID-19 response. However, there were many issues with its roll out, which we won’t get into here.
What’s important on this front is persistence. Just because you didn’t receive funds in the first round of PPP, doesn’t mean you won’t still qualify in the future. To prepare for this possibility, continue to apply for loans and make sure your bookkeeping and financial records are up to date.
If PPP doesn’t work out, there are still options available, and this preparation will put you in a good spot. Moving forward, you still have options.
- Economic Injury Disaster Loans (EIDL) Like PPP, the EIDL program was maxed out early on, but may still be an option. Congress has been applying additional funds, so staying prepared is important. For instance, as of this writing, applications were open to agricultural businesses. To better your chances of qualifying for this type of loan, try where possible to limit expenses and keep bringing in business.
- Payroll Tax Credits If your business has been financially impacted by COVID-19, you may qualify for a payroll tax credit for up to 50% of salaries up to $10,000. The provision is meant to encourage employers to retain employees. To qualify, your business must be suspended by government order due to COVID-19 during the calendar quarter (partially or fully), OR your gross receipts must fall below 50% of the comparable quarter from 2019.
- Tax Deferral Federal tax deadlines have been pushed back for businesses as well as individuals. Specifically, employers can defer their employee tax deposit and payments through the end of the calendar year.
- Traditional Small Business Association Loans
- Payment deferrals If you currently have loans and are experiencing a slow down you should call the bank and ask for a deferral on your loan payments. Every little bit helps when we are talking about survival.
Not all of the relief provisions in the CARES act require you to borrow from a bank. You can also borrow from yourself, in the form of Coronavirus Related Distributions or CVDs. This part of the act allows you to borrow up to $1000,000 from a tax-advantaged retirement plan, like an IRA or 401(k) to help you weather the situation. Importantly: The government does not place restrictions on how you use the funds. As long as you repay the money within three years, there are no federal income tax consequences.
CVDs aren’t the only part of the CARES act focused on retirement accounts. The stimulus package also suspends required minimum distributions (RMDs) for 401(k)s, 403(b)s, 457(b)s and IRAs for 2020. Essentially, if you are 72 or older, you are not required to withdraw money from your plan in 2020 like you would be in a normal year. If you’re tempted to take these distributions anyway, remember that the prescribed RMD amount is calculated based on the stock market close in 2019. Since the market declined significantly in early 2020, withdrawing money based on the 2019 level would lead you to withdraw a much larger percentage of your nest egg than intended.
Ultimately, which provisions in the CARES act you choose to utilize depends on your unique business and personal circumstances. To discuss any of these options, or if you have questions about the big picture, my door is always open.