How to Actually Apply for Economic Relief Packages Announced This Week
We are in a time of uncertainty, driven by an external force that we can only control by maintaining social distance and taking proper health precautions. However even with these extreme measures, the length of time for COVID-19 is a looming presence over our society is yet to be determined.
Amidst the uncertainty, the Federal Government stepped in to provide an unprecedented amount of economic stimulus to businesses and individuals, aiming to provide clarity to the broader American public that we will get through these tough times together. In reading the documents and guidance, I felt an overwhelming sense of relief that friends and clients who I know have been negatively impacted by the quarantine and shut down will be supported. We’ve received a lot of questions and I really wish I had all of the answers - but even as a personal finance tax nerd, I’m left wondering in certain instances. I’m writing this blog post to give you my understanding of what’s available to you today and to hopefully help provide some clarity on what you can do to help protect yourself, your family & your businesses during these difficult times.
Before we get started, if you aren’t familiar with the CARES Act, I would encourage you to watch our video that describes the new law and how it impacts small businesses and individuals. What we outline below updates for any new information and expands upon our initial overview.
Relief for Individuals
Stimulus Checks
What are these?
The Federal Government will mail you a check for $1,200 as an individual or $2,400 as a married couple if you make less than $75k per person. This is based on your 2018 or 2019 tax return, whichever is the most recently received by the IRS. If you have any children, you will receive $500 per child under the age of 17. If you are a head of household, your income limit is $112,500. If you make more money than $75k per individual OR $112,500 as a head of household, your recovery check will be phased out at the rate of $5 for every $100 in excess of these limits.
When can we expect them?
The Treasury department has stated that there will be a website for taxpayers to input their direct deposit information to help cut down on the time to receive money. No advisory has been given as to when checks will be in the mail, so we recommend keeping your eye out for this website update as you will receive your money much faster. The distribution is expected in the next 2-3 weeks per the IRS website.
The American Institute of Certified Public Accountants advised that “the stimulus rebates are being treated as advanced refunds of a 2020 tax credit. Tax payers will reduce the amount of the credit available on their 2020 tax return by the amount of the advance refund they receive.” This means that if you did not receive a check but are eligible for one in 2020, you will receive it as part of your tax refund when you file your 2020 tax return.
Will U.S. citizens living abroad get a payment?
Yes, as long as they meet the income requirements and have a Social Security number.
Pandemic Unemployment Benefits
Unemployment insurance is typically available for individuals who have involuntarily lost their jobs and are actively seeking employment. The stimulus package expanded the rules for unemployment benefits, referred to as pandemic unemployment benefits.
Do I qualify?
If you work for a company and have lost your job, are on furlough or have had your hours reduced, know that you may be entitled to an increase in unemployment benefits. For individuals who are self-employed or own their own business, unemployment insurance has been expanded to include you as well. The new provision is called pandemic unemployment insurance and will cover self-employed, independent contractors, and gig economy workers. This also includes you if you are working for yourself as a sole proprietor, LLC or S-Corp.
Be prepared to provide self-certification that you are partially or fully unemployed OR are unable to work specifically because of COVID-19. You can reference the full list of circumstances here.
How do I apply?
You can apply through your state’s unemployment website. If you qualify for regular unemployment benefits, you should apply normally. However if your unemployment or reduced employment relates to COVID-19, you will want to specify this within your reason for unemployment or partial unemployment.
What will I need to fill out the application?
Have your tax returns, W2s and quarterly income over the last 18 months ready. If you worked at a company anytime in the last 18 months, also have your employer’s information, including supervisor name, business address and phone number available.
How do I fill out the application?
Well, it depends what kind of ‘business’ or ‘worker’ you are! If you own and run a LLC, S-Corp or as a Sole Proprietorship, then you should file with your business name or your name as the employer. If you’re a gig economy worker or independent contractor, then you should file using your last employer’s name.
You’ll need to provide your income quarter by quarter over the last 18 months. You’ll also need to provide an estimate for how much income you have lost or expect to lose as a result of the economic uncertainty.
For S-Corps, this is your W2 wages, plus any profit-sharing. You would not be able to claim any distributions.
For Single Member LLCs, Sole Proprietorships, Independent Contractors and Gig Economy workers, this would be your net income from self-employment.
For Multi-Member LLCs, this would be the sum of your guaranteed payments plus your allocation of ordinary business income.
How much unemployment will I receive?
The amount of unemployment you receive depends on your state of employment. For example, the max benefit you can receive in California is $450 per week, whereas New York is $504. The Federal government has provided funds to increase the max benefit by an additional $600.
Based on our understanding, your unemployment benefit would be your calculated rate plus $600 per week. In California, if you make at least $3,900 in wages per month, you will most likely receive $450 per week. Including the $600 extra from the Federal Government, you will earn $1,050 per week or at least $4,200 per month.
Although it was expected that the time to issue unemployment checks would be quicker, the extreme number of unemployment filings that have occurred is causing back up and delays. We are estimating that anyone who applies for unemployment benefits should expect to wait at least two weeks to receive them.
How long will unemployment benefits last?
39 weeks, including 26 weeks offered by states and an additional 13 weeks provided by the Federal Government.
If my wages have been cut, but I am already collecting social security, can I file for unemployment?
Yes.
If I received a severance package, am I eligible for unemployment benefits?
The rules vary by state. For example, in California you are eligible to receive benefits if you are receiving severance in a lump sum or in installments, you may still be entitled to benefits. Texas, however, prohibits people from qualifying for unemployment benefits while receiving severance payments.
Individuals in California
One deadline that hasn’t budged for Californians is the property tax deadline of April 10th. Property taxes are one of the few funding sources that bypass the state and go directly to local governments. If you have the ability to, we encourage you to pay your property taxes on time.
For those looking for work, the state has partnered with three companies — LinkedIn, Salesforce and Bitwise — to launch a website matching people with job listings in California. Newsom said the website, onwardca.org, already has more than 70,000 job listings. Most are in the health care, agriculture, logistics and grocery industries — essential businesses not affected by the statewide “stay-at-home” order.
Relief for Small Businesses
The Small Business Administration website provides insight on temporary relief programs available for small businesses impacted by COVID-19. In addition to the below, our video also describes relief that you can receive on the deferral of payroll taxes and the employee retention credit. Because of the popularity and extreme measures of the Paycheck Protection Program, we will provide you with the latest updates on everything we know. Additionally, we will give you some resources on other loans and grants available.
from the SBA
Paycheck Protection Program (“PPP”)
Beginning today, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders. However unfortunately, the hold up at the Treasury may delay the execution of this program. This program is available under June 30, 2020 - however, loans are issued on a first-come-first-serve basis, so the sooner you are able to apply, the better.
The guidance on who to use, how to receive the PPP, and the terms of the loans has been changing on an intra-day basis since the law went into place on March 27.
We can provide an update from what we know now (on April 2), but the flow of information has been disjointed - so it may take days, a week or longer for things to work as intended.
You should work directly with the bank where you have a business checking account and banking relationship. Banks have strict know-your-customer regulations that are being put into question as they have explored providing loans to businesses outside of their customer basis. Some banks are restricting loans to customers who have an existing business lending relationship.
Due to the expected oversubscription of the PPP, the expectation is that over the first 8 weeks, expenses related to payroll will be forgiven, however only up to 25% of other costs (rent, utilities, mortgage interest) will be forgiven.
Following forgiveness, the remaining balance of the proceeds received will convert to a loan. Banks will not have flexibility on the loan terms and the loan terms have changed. Most recently, the loan terms are 1% for 2 years. Loan payments will be deferred for 6 months.
Clarification has been provided on how ‘testing’ will work to ensure that you keep your employees employed. If you do not maintain your staff and payroll, your forgiveness will be reduced.
Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. This means if you have laid off employees, you should rehire them before April 27, 2020.
Additional terms and conditions can be found here - a document that has been updated throughout the time since the law was passed. We’ve had many questions come our way regarding the PPP, so we have compiled them to our best understanding below.
There are two dates for sign up - April 3rd and April 10th. Which one should I do?
This one honestly drives me crazy! This language from the Treasury Department is in direct conflict with the IRS website. (Yes, I love the IRS website).
The Treasury recently advised the following:
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Self employed in the broader sense is someone who completes self-employment tax on their tax return. If you’re a schedule C or sole-proprietor, then very clearly you’re self employed. The IRS specifically states that sole proprietors ARE self employed, but yet somehow the sign up dates are different.
Our interpretation is, with help of fellow advisors --
If you have a business checking account, you can apply today.
If you do not have a business checking account, you are considered an independent contractor or self-employed from the Treasury Department definition, and you should apply beginning next week.
We recommend applying through your bank. If you are applying through your business checking account, you should refer to yourself as a small business or sole proprietor. If you are applying through your personal checking account, you should refer to yourself as an independent contractor or self-employed.
How do I calculate payroll?
Payroll costs are inclusive of benefits, including retirement contributions and health benefits. There isn’t clear guidance on how this is defined for purposes of the PPP, so we are deferring to our understanding of payroll and again, through consulting with some of our fellow advisors.
If you own an S-Corp, this would include W2 wages, benefits and any profit-sharing or retirement contributions. This unfortunately would not include your owner distributions/dividends.
If you own an LLC, all of your owner’s compensation may be counted. For Single Member LLCs or Sole Proprietors, this would be your net income from self-employment. For Multi-Member LLCs, this would be the combination of Guaranteed Payments and Ordinary Business Income allocated to you. If you’re an LLC taxed as an S-Corp, defer to the rules of the S-Corp.
If you are a business owner or manager and have employees, you will be able to calculate payroll including any W2 wages, retirement benefits and health benefits that you cover for your employees. You should only include full-time employees who are being paid through W2, not 1099 workers.
Can I apply for unemployment and the PPP?
There’s nothing that specifically precludes you from applying to both, however in the spirit of the law this doesn’t seem like the right thing to do. If you are receiving a loan to cover payroll and also potentially be forgiven, you should remain employed. There is certainly a timing argument to be made (fire & re-hire) and an argument to be made if your pay needed to be reduced by less than 25% and you were filing to make up the difference, however in most cases we think applying for the Paycheck Protection Program OR for unemployment would make the most sense.
If your business is still undergoing stress and you are unable to pay yourself or your employees after receiving the PPP and using it to cover payroll costs for that period, we think pandemic unemployment insurance is worth exploring.
Disaster Loan Assistance for Businesses
The second option for businesses affected by COVID-19 is to apply for an Economic Injury Disaster Loan (EIDL). 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. The disaster loan program is the only form of SBA assistance not limited to small businesses.
Economic Injury Disaster Loans are being offered for financial assistance through loans for businesses that can be paid back over the next three decades. In a press conference on Thursday, April 2nd Governor Gavin Newsom of California said “You can get a $10,000 loan up front as your application is being processed, you’re presumed eligible for the dollars in that loan account. That loan provides upwards of $2 million for small businesses, paid back over a 30-year period and interest rates of 3.75 percent and for non-profits in that category, 2.75 percent.”
New State Aid for Small Businesses in California
In addition to the two new programs being offered by the Federal Government, California’s Governor Gavin Newsom announced plans to provide financial relief for California small businesses dealing with the economic hardship caused by the COVID-19 pandemic in a press conference on Thursday, April 2nd. Newsom introduced a one-year reprieve that will allow small businesses to keep upward of $50,000 in money they would otherwise owe the state in sales tax. The Governor encouraged small business owners to visit the small business relief page on the state’s COVID-19 website for more information on how to apply.
Effective April 2, 2020, small business taxpayers, those with less than $5 million in taxable annual sales, can take advantage of a 12-month, interest-free, payment plan for up to $50,000 of sales and use tax liability. On the state’s small business relief page it states that payment plan requests can be made through their online services system in the coming months.
Newsom additionally said the California Small Business Loan Guarantee Program via IBank would provide $50 million in state funding, providing potential capital for individuals who do not qualify for federal funds. Eligible Applicants are small businesses located in California with 1-750 employees that have been negatively impacted or experienced disruption by COVID-19 as well as eligible nonprofits.
The terms: Guaranteed up to 7 years; term can be longer. Guarantees up to 85% – 95% of loan. Loan interest rates negotiated between lender and borrower and qualifications are based on lender criteria. Qualifying small business owners may apply directly with a lender (LIST to be announced soon) or get additional information by contacting one of the participating Financial Development Corporations (FDCs) from this list.
Resources for you
Know that this is an evolving situation and leverage your resources - your bankers, your CPAs and your financial advisors to make sure you’re getting the help you need. We expect this will not be the last of the stimulus.
We’ve provided a list of resources below to help you during this time.
Stephanie Bucko is a fee-only financial planner based in Los Angeles, California and is the Chief Investment Officer of Mana Financial Life Design. Mana Financial Life Design provides comprehensive financial planning and investment management services to help clients organize, grow and protect their wealth throughout life’s journey. Mana specializes in advising professionals in the tech industry, as well as women who work in institutional investing, through financial planning and investment management. As a fee-only fiduciary and independent financial advisor, Stephanie never receives commission of any kind. She is legally bound by her certification to provide unbiased and trustworthy financial advice.