As the largest economic stimulus package in our country’s history continues to roll out, so do many questions around how this bill benefits you. Which is why I'm simplifying everything into in an easy to understand format - so you'll have the info you need, when you need it.
Small Businesses including sole-proprietors, independent(1099) contractors & the self-employed this blog is for you!
In this stimulus bill, there are quite a few very beneficial options to help keep you afloat during these times including:
Part 2 Stimulus Bill:
EIDL $10,000 Grant That Does Not Need to Be Paid Back! & Loan
Payroll Protection Program where the loan can be forgiven
& Tax Relief!
If you are an individual that does not have a business feel free to disregard this blog but be sure to pass it along to friends & family that could benefit from these temporary stimulus additions.
Now onto the awesome options for small business owners + the self-employed!
SPECIFIC LOAN FORGIVEN 100% OR NO NEED TO PAY BACK!
The SBA (Small Business Administration) is offering loans through 2 programs where money can be totally forgiven! To be eligible for these two programs you must have a business with 500 or fewer employees (self-employed/sole proprietors/independent contractors are included). You must make a good-faith certification that the loan is necessary due to the uncertainty of current economic conditions caused by COVID-19.
Information is changing daily and I have been adding any important updates here.
Here is what we know so far...
Source: SBA
Program 1 - EIDL $10,000 Grant - Economic Injury Disaster Loan Program
Who can apply?
Small businesses including non-profit organizations, sole proprietors, independent contractors and self-employed who have been affected by COVID-19.
How much?
$10,000 will be provided upfront as a grant and anything over $10,000 will be a loan at an interest rate of 3.75% (2.75% for non-profits). Updated 4/10/20: the $10K grant is now being limited to $1,000 per employee up to $10K max. Self-employed is considered 1 employee.
Can it be forgiven?
The $10,000 grant does not need to be paid back. Going after the PPP too? Please see my comments below on both. From guidance, I received over the weekend this $10,000 grant is taxable.
Positives To This Loan
Money is supposed to get to you faster with this program and you can apply directly online today. SBA says you can receive the $10,000 within a week (originally it was 3 days, but they just changed it to a week. I don't think that is actually happening so don't count on it that fast, but it should be faster than the PPP).
Resources: Info on EIDL. Head to the SBA to apply for the loan.
Program 2 - The Paycheck Protection Program {PPP}
Who?
Small businesses (500 or fewer employees) including self-employed, independent contractors and sole-proprietors.
How much?
Max Loan Amount = 2.5 X Average Monthly Payroll of the last year
Example: If your average monthly payroll is $10,000 the maximum loan amount you could receive is $25,000
Average Monthly Payroll includes retirement contributions and group health insurance premiums to name a few (see guide below for the full list)
Can It Be Forgiven?
Yes! If you use the loan for qualified expenses (see summary below for the eligible expenses), funds are used with in the first 24 weeks or December 31st 2020, whichever is earlier and you keep the same amount of employees (updated 6/5/20).
Due to high participation, not more than 40%(updated 6/5/20) of the forgiven amount may be used for non-payroll costs - rent, utilities, mortgage interest. For example if you used 50% of the proceeds for rent then it would not be fully forgiven
Forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to an employee
Laid-off workers already? Good news! You can bring back the employees that you had to lay-off during this time, fully qualify, AND be able to pay them! WIN-WIN! Updated 6/5/20: You have until December 31st 2020 to do so and there is flexibility
Debt Forgiven will NOT be taxable (normally debt forgiven is taxable so this is crazy that it will not be taxable!)
What if I don’t use all the loan amount for qualified expenses?
Updated 6/5/20: You must spend 60% on payroll for 100% loan forgiveness. Otherwise, forgiveness is limited and the remaining becomes a loan. Loan terms have been changing. New loan terms are 1% for 5 years. Hopefully this won’t matter as I hope you get 100% forgiveness :)
How can you apply?
Must be through an SBA approved lender. I recommend you go through the bank where you have your business bank account. I have my business bank account at Chase and Chase clearly states they are only taking applicants that have business bank accounts with them.
April 3, 2020 - small businesses and sole proprietorships
April 10, 2020 - independent contractors and self-employed individuals
Program available through August 8th, 2020 (updated 7/6/20). There is only so much money allotted to this program so I recommend you apply sooner rather than later.
Updated 4/24/20: On 4/16/20 the PPP program ran out of money - the $350 Billion allotted to this program. On 4/24/20 an additional $310 Billion was added to the program. Funds are still expected to run out so if you need the funds apply ASAP. If you already have an application pending there is a good chance you will be approved.
Resources:
Wonderful 4 Page Summary on the PPP Program from the US Chamber of Commerce. It’s an easy read I promise.
Terms and Conditions: Read here.
PPP Application updated on 4/3/20
PPP Forgiveness Application: updated 5/27/20
Guidance & interpretation of the PPP forgiveness application updated 5/27/20
PPP Flexibility Act Article updated 6/5/20
PPP Forgiveness Guide from the US Chamber of Commerce updated 7/9/20
WHAT ABOUT APPLYING TO BOTH?
Can you apply for both?
Yes, BUT I recommend you don’t use for duplicative expenses (for example use both EIDL & PPP for payroll}. So EIDL for operating expenses and PPP for payroll. Also, per the guidance, your EIDL will be wrapped up into your PPP for forgiveness if used for duplicative expenses.
Which one should I apply for?
If you have payroll or self-employed income - PPP
If you have operating expenses and need any money you can get right now to stay afloat than definitely the EIDL in addition to the PPP.
Other SBA Loans
If the PPP isn’t enough then the EIDL loan has a very low-interest rate at 3.75%. Most small business loans are anywhere from 9-10% so this is a deal!
Also if you had an SBA loan prior to all this, SBA is offering six months of payments of principal, interest, and any associated fees on your current SBA 7(a) loans. That is crazy!!!
TAX RELIEF OPTIONS
Employee retention tax credit - 2020
How much?
Refundable payroll tax credit equal to 50% of wages paid to each employee, up to a maximum of $10,000 of wages per employee. Not eligible with the PPP.
Who Qualifies?
If operations of a company has closed or stopped due to government authority or had a significant decrease in revenue during a quarter
Significant decrease is defined as - quarterly revenue is 50% less than the same quarter in 2019
For example, 2019 Q2 Revenue was $100,000 and 2020 Q2 Revenue was $45,000 your business would qualify
Based on a quarterly basis
Townsend Tip:
This is on a quarterly basis - so manage when your projects come i.e. what quarter your revenue would come in to qualify.
Resources & updated info can be found here.
ABLE TO DELAY PAYING 2020 PAYROLL TAXES
(includes self-employed taxes too!)
You do not have to be affected by COVID-19 to qualify for this! This can help you manage your cash flow during this time and delay paying 2020 payroll taxes. Updated 6/5/20 this is now eligible with the PPP.
How much?
Employers and self-employed individuals can defer payment of the employer share of the Social Security tax (6.2%) from 3/27/2020 (date of stimulus bill enactment) through 12/31/2020. Half is to be repaid by 12/31/2021 and the other half by 12/31/2022. This is basically a 0% interest loan from the IRS for payroll taxes.
Self Employment Taxes
This applies to you too for your “employer” portion so close to 50% of your self-employed taxes from the date of enactment can be deferred by 25% of December 31st, 2021 and the other 25% by December 31st, 2022.
Townsend Tip:
If cash is tight when you go to make your estimated tax payment in June (Q2 is due first this year) tell your CPA that you want to defer 50% of your payroll taxes. Just make sure you track how much you are deferring so you aren’t stung with a much bigger tax bill in 2021 & 2022 than you thought.
Resources & updated info can be found here (updated 4:16.20)
Excellent summary of ALL the above here (updated 4:16.20)
CONCLUSION
If you are in need of money or think you are going to need it soon then absolutely take advantage of these programs. That is what they are here for - to support small businesses during this time and to help keep employees paid!
Small businesses are incredibly important to our economy’s health. However, if your company is fine (you're a hand sanitizer company, for example) then I would encourage you not to apply for the loans. There is only so much money allotted to these programs and it is meant to go to those most in need.
If you're in need, I would recommend taking advantage of one of the SBA loan programs ASAP and do everything in your power to qualify for 100% forgiveness. If you can’t qualify for the loans then use the tax relief mentioned above.
I hope you found this recap helpful and that this series serves as a resource of information during this time. If you need to set up a time to go over your own specific situation, an hourly rate is available, let's set up a time.
For more tips and info, follow along on Instagram and LinkedIn. I'm here to help guide you through this, we are in this together!
