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What Business Owners & the Self-Employed should know about the Stimulus Package

As the pandemic has spread, many small businesses have been impacted by the social distancing and stay-at-home orders. If your business has taken a hit, it’s good to know your options under the Stimulus Package. Here is a quick summary of the basics.

Unemployment Insurance

Under normal circumstances, self-employed people or independent contractors aren’t eligible for unemployment insurance (UI) except those who have set up their businesses as an S corp. The Cares Act has changed the eligibility to expand unemployment insurance to include self-employed/independent contractors.

Starting April 28th, 2020, the California Employment Development Department is accepting UI applications the for self-employed, business owners, and independent contractors.  To directly quote the CA EDD, the criteria include:

  • You had a definite date to begin work, but the job is no longer available, or you could not reach the job as a direct result of COVID-19.

  • You are unable to travel to your job as a direct result of COVID-19.

  • You quit your job as a direct result of COVID-19.

  • Your workplace is closed as a direct result of COVID-19.

  • You are self-employed or work as an independent contractor (with reportable income, such as a 1099) and you are unemployed, partially employed, or unable to work because COVID-19 has forced you to stop working.

For more information, please visit the CA EDD’s “Guide To Applying For Unemployment Benefits” here. The payment will include the state benefit (a percentage of your previous pay) plus $600 a week in Federal Assistance. The $600 from the Fed will last for four months through July 31. The state-level UI is also extended by an additional 13 weeks. For example, California’s UI is usually 26 weeks; the bill extends benefits to 39 weeks.

Paycheck Protection Program Loan

The paycheck protection program is available to small businesses to keep workers on payroll. The challenge many people have been facing is that each bank is allocated limited funding from the government and it is depleting quickly.

  • If your business has fewer than 500 employees, and was in business on or before 2/15/2020, you may qualify for the PPP Loan.

  • The amount is based on 2.5 times your average monthly payroll costs from the prior 12 months of payroll.

  • Apply as soon as possible through your bank and be sure to submit all relevant documents required to ensure smooth processing.

  • If your bank doesn’t offer the PPP Loan any longer due to lack of funding consider checking out PayPal or online banks.

  • Some portion of the loan can be forgiven if it is used on payroll, rent, mortgage obligations, utilities and other fixed obligations in the first eight weeks after the loan funds. Whatever is not forgiven will convert to a two-year loan that is nearly interest-free.

Economic Injury Disaster Loan Emergency Advance

When it was operative, this program offered up to $10K of economic relief. However as of April 30th, Small Business administration is unable to accept new applications due to lack of funding.

Stimulus Checks

  • If you haven’t filed for a refund in 2018 or 2019 and submitted banking information to the IRS, you’re going to have to wait for a paper check. Non-filers can update their banking info here.

  • If you have not received your stimulus check, be sure to check your status at the IRS website  Click on “Get my Payment” to check status and to ensure IRS has your current direct deposit information.

  • If you were divorced in 2019 or moved to a different address and the IRS doesn’t know your filing status or where you live, file your 2019 taxes ASAP.

SBA Loan Forbearance

The CARES Act basically allows the government to automatically make payment for your SBA 7(a) loan for the six month period beginning April 1st, 2020. If you haven’t received any communication from your lender stating your SBA loan is in forbearance, contact your lender as soon as possible.

The Employee Retention Tax Credit

The CARES Act also includes an employee retention tax credit (ERTC) for business owners. The caveat is that if you were granted a PPP loan, then you can’t get the tax credit. Given the difficulty of actually securing a PPP loan due to lack of funding, the ERTC may be a viable option for many businesses.

  • Businesses with less than 100 employees are eligible. Businesses must have:

  • Fully or partially suspended operations at any point during 2020 due to a coronavirus government mandate,

  • Shown a significant decline in gross receipts during a calendar quarter in 2020. The decline must be less than 50% of the gross receipts as compared to the same quarter in 2019.

  • The ERTC is a refundable payroll tax credit of 50% of up to $10,000 in wages per employee, which is essentially $5,000 per employee. Note this doesn’t have to be paid back, is easy to claim, and applies to all payroll between March and December 2020.

  • For more information, see the IRS website.

Payroll Tax Deferral

This is yet another option for businesses or self-employed who did not receive funds under PPP loan program. Under the payroll tax deferral, the IRS allows deferral of payroll tax applied to wages paid or self-employment between 3/27/2020 and 12/31/2020.

Fifty percent of the deferred amount will be due 12/31/2021, and the remaining amount will be due 12/31/2022. This can be an option for business who experience cash flow issues now because it is almost like an interest-free loan from the IRS.  The danger lies in making sure that you can make payment to the IRS when the deferral comes due in 2021 and 2022.

Summary of What Business Owners & the Self -Employed should know about the Stimulus Package

There are many different options for Small business owners and self employed to consider when figuring out how to apply the Stimulus Package to their personal situation. This is intended to be a brief overview and can in no way be interpreted as specific advice. For guidance on how to interpret this in relation to your specific situation please contact us.

Sources

California Employment Development Department.  Guide to applying for unemployment benefits. Retrieved on May 1, 2020 from https://unemployment.edd.ca.gov/guide.