covid-19 business provisions

Key Tax Provisions

• Employee Retention Payroll Tax Credit
  • Employers who are closed due to COVID-19 can receive a payroll tax credit against eligible payroll taxes for each calendar quarter equal to 50% of the qualified wages paid to each employee. The credit is available for an employer whose operations were fully or partially suspended due to a COVID-19 related shut-down order from an appropriate governmental authority, or if gross receipts declined by more than 50% when compared to the same quarter in the prior year
  • The eligible wages for an employee are up to $10,000 for all calendar quarters. Qualified wages include wages and health benefits paid to an eligible employee
  • This credit is also available to nonprofit organizations
  • Employers taking advantage of other credits or taking a small business interruption loan are not eligible for this credit
• Delay of Employment Tax Payments
  • Deferral of the employer portion of payments of certain payroll taxes
  • The Act allows employers and self-employed individuals to defer payment of the employer share (6.2%) of the Social Security tax on wages through the end of 2020. Fifty percent of the deferred tax payments will be due by December 31, 2021, and the remaining portion due by December 31, 2022. Businesses who have debt forgiven from Payroll Protection Program loans (covered below) are not allowed to delay their payments
• Charitable Contributions Deduction Modifications
  • For corporations, the CARES Act temporarily increases the 10 percent limitation on charitable contribution deductions to 25 percent of taxable income. Excess contributions may be carried forward to future years, subject to the general charitable contribution carryforward rules.
• Net Operating Loss/Excess Business Loss Changes
  • Modification of net operating loss (NOL) and limitation on losses rules and deduction limitation on business interest
  • The Tax Cuts and Jobs Act limited net operating loss deductions. The CARES Act has amended those provisions to allow net operating losses incurred in 2018, 2019, and 2020 to be fully deductible, without the 80% limitation. The net operating losses from 2018, 2019, and 2020 are also allowed to now be carried back five years to allow businesses to claim refunds of taxes paid in prior years
  • Owners of pass-through entities are no longer subject to excess business loss provisions for 2018, 2019, and 2020. They will be able to take full advantage of pass-through losses, as available
• Business Interest Deduction
  • The Tax Cuts and Jobs Act had limited the deductibility of business interest to 30% of taxable income. The allowable deduction under the CARES act has been increased to 50%
• Qualified Improvement Property
  • Businesses will be able to write off all of the costs of certain interior renovations as 15-year property and eligible for expensing in nonresidential real property instead of using straight-line depreciation over a 39-year period
  • Qualified improvement property technical correction, allowing qualifying interior improvements of buildings to be immediately expensed rather than depreciated over 15 years

Tax Payment and Deadline Deferrals

• IRS tax deadline extension details
  • The new due date of July 15, 2020 applies to 2019 tax year federal income tax returns and respective payments (including self-employment income tax payments) originally due on April 15, 2020. The official guidance released in Notice 2020-18 also notes that “There is no limitation on the amount of the payment that may be postponed.” This effectively eliminates the $1 million (individual/trust/estate) and $10 million (corporation) limits initially set by Notice 2020-17. Additionally, it is notable to mention that the 2nd quarter estimated payment, normally due June 15th, is not included in the notice and therefore has not been delayed.
• Illinois Tax Deadline Extension
  • On March 25th, Governor JB Pritzker announced that the Illinois Department of Revenue would follow the Internal Revenue Service in extending state tax return filings and payments until July 15th
• Other state tax deadline extensions
  • Many states have not announced whether their deadlines will extend to match the updated federal deadline. We will continue to monitor these announcements and plan to file extensions as necessary.

SBA Loan Options

(Treasury Sec. Mnuchin said in a press conference that these loans should be available Friday, April 3, 2020)

• The Paycheck Protection Program will provide nearly $350 billion in loans and loan guarantees for the covered period of February 15, 2020, through June 30, 2020. Note that the use of PPP eliminates the use of SBA Economic Injury Disaster Loan (EIDL) below.
  • It will cover payroll costs (up to annual amounts of $100,000); continuation of group health care benefits; employee salaries, commissions, or similar compensation; mortgage payments; rent; utilities; and interest on any other debt obligations incurred before the covered period
  • It will extend eligibility to companies of 500 employees or less and 501(c)(3) nonprofits, veterans’ organizations, and tribal small business concerns
  • Sole-proprietors, independent contractors, and other self-employed individuals may also participate
  • Loan forgiveness is available up to the principal amount of the financing
  • Loan forgiveness would be reduced for employers who lay-off workers or reduce employee compensation except where employers rehire workers or pay additional wages to tipped workers
  • Loan forgiveness is available for payroll costs, mortgage interest rent, and utility payments
  • Forgiven loan amounts will not be included as gross income
  • To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.
  • Waives the credit available elsewhere, personal guaranty and collateral requirements.
  • All or a portion of the loan may be forgivable and debt service payments may be deferred for up to 1 year.
  • The general formula to determine the loan amount available is the lesser of the average total monthly payments for payroll costs during the one year before the date the loan is made, multiplied by 2.5; or $10 million
• The Economic Injury Disaster Loan Program (EIDL) can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster, regardless of whether the applicant sustained physical damage.
  • Expansion of the ways the Small Business Administration (SBA) can help small businesses, including allowing qualified SBA lenders to loan money directly to eligible customers
  • The loans offer working capital loans for payroll, accounts payable, and other bills that could have been paid had the disaster not occurred; could be used to pay fixed debts
  • Applicants need to show they have suffered working capital losses due to the coronavirus disaster
  • The SBA will do an internal test to determine eligibility, so applicants do not need to produce any bank documentation for their application
  • 95% of the loans previously issued have been for $500,000 or less but can go up to $2 million. The SBA will determine the loan amount
    • Loans up to $2 million are to be repaid over 30 years at 3.75% fixed rate; payments deferred over the first 12 months
    • Must be small business per SBA size standards
    • Loans > $25,000 require collateral
  • Any FDIC insurance bank or federally insured credit union will be able to provide these loans. These loans will be SBA loans, but you do not need to go through an SBA bank or the SBA website to access these loans. We do know which banks will be participating at this time

Chicago Small Business Resiliency Loan Fund ($100M)

• Recipients must show at least a 25% revenue decline attributable to the pandemic. The Chicago Small Business Resiliency Loan Fund is open for applications. As a reminder, these loans are available first-come, first-served. CLICK HERE TO BEGIN THE APPLICATION PROCESS

Additional Provisions

• Coronavirus-related paid leave for workers and tax credits for small and midsize businesses
  • 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. The Treasury Department has released details here: IR-2020-57
• Chicago City Taxes
  • Business-related taxes being deferred until April 30 include those collected for bottled water, checkout bags, amusements, hotel accommodations, restaurants, and parking.
• IDOR Waives Penalties and Interest on Late Sales Tax Payment
• • The Illinois Department of Revenue issued IDOR Informational Bulletin FY 2020-23 announcing the waiver of penalties and interest that would have been imposed on the late sales tax payments from qualified taxpayers (small to mid-sized bars and restaurants).