Congress passes coronavirus stimulus bill, businesses to see relief

By |  March 27, 2020
The U.S. Capitol. Photo: P&Q Staff

Congress passed the CARES Act on March 27, providing $2 trillion in relief to individuals and small businesses in the midst of the coronavirus pandemic. Photo: P&Q Staff

The U.S. House of Representatives approved the Coronavirus Aid, Relief & Economic Security (CARES) Act, a $2 trillion bill to support individuals and businesses affected by the ongoing coronavirus pandemic.

The approval in the House followed a unanimous 96-0 vote of approval in the U.S. Senate. President Trump signed the legislation Friday afternoon.

“We are so pleased today to have been able to have passed on the floor, practically unanimously, this important bill, CARES,” says House Speaker Nancy Pelosi (D-California). “And we want to demonstrate that we do care for the American people in every way.”

The stimulus package is the largest emergency aid package passed by Congress in the history of the U.S.

The Associated Equipment Distributors (AED), which engaged Congress on the passing of this bill, offered a detailed breakdown of key components of the legislation. These include:

Creation of the Paycheck Protection Program

According to AED, this will provide financial assistance through 100 percent guaranteed federal loans to small businesses (500 employees or fewer) who maintain their payroll during the coronavirus pandemic. Any small business employer who maintains their payroll may use portions of the loan for covered payroll costs, and interest on mortgage, rent and utilities would be forgiven.

The loan requires the employer to use the funds to retain works, maintain payroll, pay utilities and make mortgage or lease payments. The maximum loan is, generally, monthly payroll costs for two and a half months, but not to exceed $10 million. Payroll costs exclude compensation to individuals, including those self-employed, above $100,000.

The borrower will have a portion of their loan forgiven in the amount equal to their specific payroll costs, interest payments on mortgages, rent payments and utility payments between Feb. 15 and June 30. In addition, loan forgiveness will be reduced if the borrower reduces employment by a ration similar to their reduction in employment, or if the borrower reduces salaries and wages by more than 25 percent.

For businesses employing more than 500 employees, the Federal Reserve and Treasury Department are expected to announce new credit facilities to support lending to larger companies, according to AED.

Employee retention credit for employers subject to closure

This provision provides a refundable payroll tax credit for 50 percent of wages paid by employers to employees. The credit is available to employers whose operations were either fully or partially suspended, or gross receipts declined by more than 50 percent, compared to the same quarter in the prior year. The credit is based on qualified wages paid to the employee.

For employers with more than 100 full-time employees, qualified wages include wages paid to employees who are not providing services due to suspended operations. For eligible employers with 100 or fewer full-time employees, all employee wages qualify for the credit no matter whether the business is open or subject to shutdown.

The credit is provided for the first $10,000 of compensation for eligible employees, including health benefits, and is provided for wages paid or incurred from March 13 through Dec. 31.

Delayed payments of employer payroll taxes

This allows employers and self-employed individuals to defer payment of the employer share of the Social Security tax paid to the federal government. Employers are generally responsible for paying a 6.2 percent Social Security tax on employee wages, but this provision requires the deferred employment tax be paid over the following two years, with half to be paid by Dec. 31, 2021, and the remaining half by Dec. 31, 2022.

Modified net operating losses

This provision eases limitations on a company’s use of net operating losses (NOL).

NOL are currently subject to a taxable-income limitation, and cannot be carried back to reduce income in a prior tax year. However, this provision allows an NOL arising in a tax year beginning in 2018, 2019 or 2020 to be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to offset income fully, and these changes allow companies to utilize losses and amend prior year returns to provide cash flow assistance.

Modified limitation on losses for taxpayers other than corporations

This modifies the loss limitation applicable to sole proprietors and pass-through businesses so they can utilize excess losses and access cash flow to maintain operations and employee payroll.

Modified credit for prior-year maximum tax liability of corporations

While the corporate alternative minimum tax (AMT) repealed as part of the 2017 Tax Cuts & Jobs Act, corporate AMT credits were made available as refundable credits over several years, ending in 2021. This provision accelerates companies’ ability to recover those credits, allowing companies to claim a refund now for cash flow assistance.

Modified limitation on business interest

This temporarily increases the interest expense businesses are allowed to deduct on their tax returns by increasing the limitation from 30 percent to 50 percent of taxable income for 2019 and 2020.

Exclusion for certain employer payments of student loans

This provision permits employers to provide a student loan repayment benefit to employees on a tax-free basis. An employer may contribute up to $5,250 annual toward an employee’s student loans, with such payment being excluded from the employee’s income. The $5,250 cap applies to both educational assistance and the new student loan repayment benefit.

The provision applies to any student loans made by an employer on behalf of an employee after date of enactment and before Jan. 1, 2021.

“AED commends congressional leadership for swift, bipartisan action to buttress American families and businesses as the United States and the world deal with the COVID-19 pandemic,” says Brian McGuire, president and CEO of AED. “Most importantly, this legislation will allow small-medium-sized businesses to continue to pay their employees and serve customers despite limited economic activity. We look forward to working with Congress and the Trump administration to ensure the equipment industry emerges stronger and more resilient than ever in a post-coronavirus economy.”

For additional P&Q coverage related to the coronavirus, visit our dedicated webpage.

Zach Mentz

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