Coronavirus Tax Stimulus Package
On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act or the “CARES Act”. The CARES Act provides over $2 trillion in relief to Americans and businesses impacted by
COVID-19, as well as providing support to the healthcare system and hospitals.
This bill includes providing direct financial assistance to individuals
in the form of direct payments to adults below a certain income
threshold. $1,200 will be sent to single adults making under $75,000
annually, $2,400 would be sent to married couples making under $150,000
annually, and parent’s would receive $500 for each qualifying child
under the age of 17.
Payments would be phased out for individuals with an adjusted gross
income between $75,000 and $99,000, and those above $99,000 would
receive no benefit. Payments would be phased out for married coupled
with adjusted gross incomes between $150,000 and $198,000, and those
above $198,000 would receive no benefit. The phase out rate causes a $50
reduction for every $1,000 over the threshold. Adjusted gross income
would be based on the 2019 federal income tax return if it has already
been filed or the 2018 federal income tax return.
Another provision in the bill would expand and reform the unemployment
insurance program. As part of the expansion, the program would increase
the maximum unemployment benefit by $600 per week. This money would be
in addition to what states pay as a base unemployment benefit. This
benefit would be available for up to 4 months. An additional 13 weeks of
employment insurance would be provided in the event that employees
remain unemployed and their state unemployment benefits have been fully
exhausted. Additionally, self-employed individuals, freelancers and
independent contractors who normally cannot apply for unemployment would
be allowed to apply and receive the same amount of assistance that would
be provided under their state’s unemployment benefits program through
the end of this year.
An important provision for small businesses includes the allocation of
$350 billion for the creation of a new type of loan that would be
administered by the Small Business Administration (“SBA”). These
loans would be forgivable upon meeting certain requirements. Generally,
these loans are available for businesses and nonprofits with less than
500 employees. These loans can also be made available for self-employed
individuals, sole proprietors, and independent contractors in certain
situations. The amount of the loan is the lesser of 2.5 times the
average monthly payroll costs incurred for the one year period before
the date of the loan or $10 million. Proceeds of these loans may be used
for expenses such as payroll, group health care benefits, insurance
premiums, rent, and utilities. The amount of the loan that may be
forgiven is the total amount used for qualifying expenses during the 8
week period beginning on the loan origination date. The forgiven amount
is excludable from income, and any amounts not forgiven are paid at an
interest rate of no more than 4% for a period not to exceed 10 years.
There are different types of SBA loan assistance available.
Business Disaster Loans of up to $2 million cover repair and replacement of
damaged or destroyed real estate, machinery and equipment, inventory and
other business assets. Similar to coverage issues with business
interruption insurance, these loans will be difficult to qualify for
given the non-physical impact of COVID-19.
Economic Disaster Loans
More relevant to many small businesses are Economic Injury Disaster
Loans (“EIDLs”), which will be more thoroughly discussed below.
EIDL’s are available to small businesses to help provide working
capital and to pay business expenses. Those eligible can apply for up to
$2 million at low interest rates. The interest rate for small businesses
is 3.75% and for nonprofit organizations 2.75%. Repayment terms are
provided up to 30 years and first year payments are deferred for one
Funds from the loans can be used for fixed debts, payroll, accounts
payable and any other bills that could have been paid had the COVID-19
pandemic not occurred.
In addition to qualifying as a small business, loan approval will depend
on credit history, ability to repay and the business being located in an
affected area with losses suffered as a result of COVID-19. Collateral
will be required for most loans and real estate is preferred. The SBA
has indicated that loans will not be denied solely for lack of
collateral, but loan amounts are capped at $25,000 for unsecured loans.
Documents required with the application include most recent Business
Federal Income Tax Return, Schedule of Liabilities (SBA Form 2202) and
Personal Financial Statement (SBA Form 413). Please keep in mind that
additional information may also be requested by the SBA. Such
information may include the most recent individual Federal income tax
return for applicant, principals and affiliates, year-end profit and
loss statement, current profit and loss statement and monthly sales
$10 billion is being allocated to create a new grant program to provide
relief for applications being processed by the SBA Economic Injury
Disaster Loans programs. These grants provide loans of up to $10,000 to cover immediate cash flow needs to pay for
payroll, rent and other qualifying expenses. There are also newly
established credits and deferrals aimed to lessen the burden on
employers that keep their employees on payroll and continue operations.
This bill also includes a provision allowing the Treasury Department to
provide $500 billion in loans, loan guarantees and investments to big
businesses impacted by COVID-19. In order to oversee these funds, a new
Treasury Department Special Inspector General for Pandemic Recovery will
be created as well as the creation of a Pandemic Response Accountability
Committee to examine how the money is being used. The loans to these
companies would not be forgivable and would be subject to public
disclosure and other requirements.
Approximately $150 billion is being allocated to hospitals and the
health care system. The bill allocates $100 billion to aid in
hospitals’ response to COVID-19. Additional funding will also go to
the Strategic National Stockpile to raise supplies of ventilators,
masks, and other equipment, as well as funding for the diagnosis,
treatments and vaccines for COVID-19.
Other notable provisions in this Act provide: allowing borrowers of a
federally backed mortgage to submit a forbearance request for up to 180
days; foreclosure action is prohibited for a 60 day period beginning
March 18, 2020; temporary waiver of required minimum distributions from
retirement plans for 2020; distributions from retirement plans of up to
$100,000 can be taken from qualified plans for COVID-19 related expenses
without incurring a 10% early distribution penalty but those
distributions would be subject to federal income tax that can be paid
over a 3 year period. Any repayments within that 3 year period will
result in the distribution not being taxable (or if tax has already been
paid then a refund for amounts paid would be issued).
There may be more legislation passed to continue addressing the impact
being felt nationwide as a result of COVID-19. We will continue to
monitor the situation and provide updates as they become available.
COVID -19 ILLINOIS LOANS
Small Business Emergency Loan Fund
State of Illinois emergency COVID-19 loans of up to $50,000 will be
available for businesses outside of the City of Chicago with fewer than
50 workers and less than $3 million in revenue in 2019.
Loan funds must be used for working capital, and at least 50% of loan
proceeds must be applied toward payroll or other eligible compensation
including salaries, wages, tips, paid leave, and group healthcare
Loans are offered for 5-year terms at 3% annual interest with payments
deferred for the first 6 months. Loan amounts will be determined by
average monthly revenues prior to COVID-19.
Eligibility other than revenue and number of employees: Business must
have experienced at least a 25% decrease in revenues as a result of
COVID-19, must be located in Illinois, in operation for at least one
year, and must be for profit. Bank statement and tax returns will be
required as part of the application process.
At this time the Illinois Department of Financial and Professional
Regulation (IDFPR) is accepting expressions of interest from eligible
Small Business Resiliency Fund
The City of Chicago is establishing a $100 million Small Business
Resiliency Fund to help provide small businesses with emergency cash
flow during the COVID-19 pandemic.
Loan terms are for up to 5 years for an amount of up to $50,000.
Proceeds are required to be used for working capital with at least 50%
of proceeds applied towards payroll and commitment to retain the
workforce at 50% of pre-COVID-19 levels.
To be eligible, a business must have suffered more that 25% revenue
decrease due to COVID-19, employ less than 50 people and have gross
revenues of less than $3 million in 2019 and have no pre-existing tax
liens or legal judgments against it.
For more information, please refer to: