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CARES Act: Tax Benefits for Small Businesses

April 7, 2020

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provides additional cash flow and liquidity to small businesses negatively impacted by the coronavirus.  

Shocking data released by the United States Chamber of Commerce and MetLife found that of the small businesses polled, 24% of small businesses were within two months of a permanent closure, while sadly 11% reported they were less than one month from permanent cessation of business. For small enterprises, the CARES Act’s monetary relief could not have come at a better time, as many business owners hope the stimulus bill will temporarily ease their economic insecurities.  

The CARES Act sets forth several different processes through which small businesses can apply for, and obtain, monetary relief. Two such programs are the Small Business Administration’s (“SBA”) Economic Injury Disaster Loans (“EIDLs”), and the Act’s Paycheck Protection Program Loan Guarantee (the “PPP Program”). However, there are CARES Act provisions which extend beyond Small Business Administration’s lending. Below, are a few terms small business owners might consider: 

Delayed Social Security payroll tax payments 

The CARES Act permits small businesses to delay paying Social Security payroll taxes until the end of the year. Should businesses decided to do this, companies must pay half of those delayed taxes at the end of 2021, and the other half at the end of 2022. Potentially, companies will hold onto 6.2% salary tax as essential spare money instead of sending it to the government. 

Refundable payroll tax credit 

Businesses can claim a 50% refundable tax credit on up to $10,000 in wages paid during the Covid-19 pandemic. This means if there was a reduction in gross receipts by 50% or more from the same time last year, a company can receive a $5,000 credit per employee. These refundable tax credits are to be distributed on a quarterly basis. However, if you utilize the SBA’s PPP loan guarantee, you are not eligible to use this refundable credit. 

This credit is also offered to mid-sized to larger companies who employ more than 100 workers and kept those employees on their payroll even if they are not currently working — such as through temporary leave. This financing could assist business owners in covering employee health insurance costs, while saving on the damages and costs correlated with layoffs and then having to hire new employees when the pandemic is over. 

Small Business Development Centers 

While this is not specific to individual businesses, Congress made $275 million available in grants to Small Business Development Centers, Women’s Business Centers and Minority Business Development Agency’s Business Centers to hire staff and bulk up resources to provide mentorship, guidance and expertise to small, women-owned and minority-owned businesses and help them manage their way through the pandemic. 

Net interest deduction limitation 

The CARES Act boosts the threshold on the amount of loan interest that companies can subtract on their tax returns. That amount will rise from 30% of earnings to 50% before interest, tax, depreciation and amortization, commonly known as EBITDA and meant to signify cash flow. 

Net operating loss tax change 

Businesses that lost money in 2018, 2019 or 2020, can take the losses for each of those years and carry them back up to five years to lower their taxable income in a previous year. This would adjust the business’s tax returns for that year and they could expect to receive a refund check from the Internal Revenue Service.  

The CARES Act also suspends a previous rule that limited the amount of net operating losses companies can offset to 80% of a company’s taxable income. It now allows companies to apply losses to the entire taxable income of a previous year. An additional provision allows companies to take net losses and carry them forward into future taxable years. 

If you are a small business owner and would like to discuss your options relating to monetary relief provided by the CARES Act, please contact Tiveron Law Attorneys at Law at 716-636-7600 

DISCLAIMER: This article has been published as a service to the general public, and, as such, is intended for general purposes only. The information contained within this article should not be considered and/or construed as legal advice. Each reader is advised to consult legal counsel to determine how the contents of this article may apply to their particular facts and circumstances. 

For changing and up-to-date legal information, visit our COVID-19 Resource Center.