What You Need to Know
Small businesses have been hit particularly hard by COVID-19, especially within the leisure and hospitality industries. As such a vital part of the nation’s economy, it’s important to find a way to keep as many of these businesses open as possible.
The new $900 billion economic stimulus package keeps those small businesses in mind, with loans, tax credits, and aid for specific sectors. If you own a small business or you’re self-employed, here’s what you need to know.
The big headline for small businesses has been the return of the Paycheck Protection Program (PPP). This time around, the program is in effect until March 31, 2021. As before, you’ll need to apply for the loan and meet certain qualifications.
PPP loans have an interest rate of 1%, with six months of no payment. However, for many businesses, part or all of that loan can be forgiven. Your PPP loan can be 100% forgiven if your business meets the following criteria:
- You’ve kept or rehired employees and retained the same salary levels you had prior to the pandemic.
- At least 60% of your PPP loan funds must be used for payroll expenses.
- The other 40% of the loan must be used for mortgage or rent, utilities, qualifying operational costs, property damage due to civil unrest, supplier expenses for items that were essential to operations, or personal protective equipment related to the pandemic.
- During the time you were using the loan, you strove to maintain the same staffing levels you had before the pandemic.
In order to qualify for the second round of loans, though, you’ll need to be able to show that you’ve had a 25% drop in revenue for any quarter in 2020 when compared to the same quarter in 2019. You can’t have more than 300 employees to qualify, although some businesses may qualify by having 300 or less per location.
Loans will be administered through participating lenders across the country. Once you’ve submitted your application, it can take a few days for the SBA to review it and make a decision. If your application is approved, you’ll get an emailed offer with instructions on signing and accepting. The funds will be deposited into your bank account within a few days.
Unemployment relief for the self-employed
The new relief bill includes the Continued Assistance for Unemployed Workers Act of 2020 (CAUWA), which extends the boost to unemployment insurance provided under the original bill.
If you’re a self-employed small business owner, this unemployment insurance may be available to you. The bill includes an extra $300 per week in Pandemic Unemployment Assistance (PUA) to everyone who qualifies for unemployment benefits. This is in addition to the unemployment payouts you receive each week, as well as the $600 one-time payment all qualifying workers received.
The good news is, this also applies to those who work as W-2 workers and have self-employment income. As long as you made at least $5,000 in the most recent tax year, you can qualify for an additional $100 per week.
Employee Retention Credit
Small businesses have also found it tough to continue to pay employees during the pandemic. The Employee Retention Credit helps with that, offering a tax credit to help cover the cost of those salaries for businesses that were affected by lockdown orders.
Even if your business operations weren’t affected by lockdown orders in 2020, this new bill will help you. The bill extends eligibility to businesses that were affected by a lockdown in 2021. Your gross receipts for that quarter will need to be less than 80% of gross receipts for the same quarter in the previous year to qualify for this credit.
The new bill increases the amount from 50% to 70%. If you qualify, you’ll get a 70% tax credit, paid in advance, for each eligible employee. The amount was increased to help cover the cost of providing health benefits to employees.
One of the biggest changes here, though, is that even if you take a PPP loan, you can take advantage of the Employee Retention Credit. This wasn’t the case with the previous bill. You can’t “double-dip,” though, which means that you can’t claim the credit for money that you paid with a PPP loan.
Economic Injury Disaster Loan (EIDL) advances
The competition was fierce for the Economic Injury Disaster Loan (EIDL) advances, which were administered through the Small Business Administration (SBA). This time around, these advances narrow the scope a little, targeting small businesses in low-income communities.
The EIDL issues payments of $1,000 per employee to each qualifying business, with a limit of $10,000. To qualify for this second round of payments, you’ll need to be a small business in a low-income community. Your business also will need to have suffered at least a 30% economic loss, as well as employ 300 employees or fewer.
It’s important to note that although these are labeled as “advances,” they’re grants, which means the funds won’t need to be paid back. For the businesses that qualify, this advance is valuable for the speed at which it’s deposited after your application is approved.
Aid for arts and entertainment businesses
If you’ve skipped live entertainment during the pandemic, you aren’t alone. That’s why the relief bill includes $15 billion in aid for live venues, independent movie theaters, and cultural institutions.
The grant allows qualifying venues and promoters to apply for grants to cover payroll, rent, and operating expenses for six months. The grants are available in two parts to cover up to 45% of your 2019 revenue.
Eligible businesses will need to apply through the Small Business Administration. To qualify, you’ll need to be able to show that your 2020 revenue declined by at least 25% from the previous year. Grants will be prioritized, with the initial grants given to venues that suffered a loss in the 70% to 90% range.
SBA loan deferment
Some small business owners got a little relief on their SBA loans thanks to the CARES Act. Originally, SBA paid six months of principal, interest, and certain other fees associated with their SBA loans.
With the new bill, that relief kicks in once again, starting in February and continuing for three months. The assistance caps at $9,000 per month, so if you owe more, you’ll have to take care of the rest.
The SBA will cover an additional six months of loans, through September 2021, for the smallest and hardest hit businesses. This extended relief will also cap at $9,000 and will only be available to a select group.
Delayed payroll tax payments
Some taxpayers opted to delay having taxes taken out of their paycheck from September through December of 2020. In exchange, businesses were supposed to start taking extra out of those employees’ pay from January through April.
The new bill extends that due date, allowing businesses to take those extra taxes out from April to December 31, 2021.
Tax break on business expenses
“no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided [under the CARES Act].”
This is great news for small businesses that are concerned about missing out on their tax deductions in a year when they need them most.
Full meal deduction
Normally, you can only claim 50% of your meal costs. But business lunches are now fully deductible, thanks to the new bill. The move is geared to encourage professionals to support local restaurants by dining out.
The 100% deduction applies to any restaurant-provided meal consumed in 2021 or 2022.
No paid leave
One thing missing from this bill that was in the previous package was mandated paid sick leave. Previously, you had to offer two weeks of paid sick leave to any employee who was out of work due to COVID-19.
That doesn’t mean you can’t offer paid sick leave. In fact, you’ll even still get a tax credit for it through March. But after that, the cost won’t be eligible for a credit.
In addition to the relief being provided by this package, the $600 payments being issued to individuals, along with the additional payments for dependents, may encourage recipients to spend a little more.
This could also help small businesses. Restaurants could even take advantage of the meal deduction by reaching out to local businesses to offer their services. Finding ways to make the most of the offerings can be just what businesses need to get through the final months until the pandemic is wiped out.