On March 27, President Trump signed into law the CARES Act, a stimulus package in response to the COVID-19 outbreak.
Here is a look at specific provisions of the CARES Act that booksellers should know.
Learn how to proceed with financial assistance here. Booksellers in need of capital should reach out to their local SBA district office, Women’s Business Center, and/or SBA-approved lender for assistance with SBA grants and forgivable loans. SCORE, a resource partner of the SBA, may also be able to provide helpful information. It is expected that the demand for grants and forgivable loans will be extremely high. Learn more about SBA's Paycheck Protection Program and Disaster Loan Applications.
For questions about specific tax provisions in the law, consult with your accountant.
The Paycheck Protection Program (PPP) will provide cash-flow assistance through 100 percent federally guaranteed loans (of up to $10 million) to small businesses. Importantly, if recipients of a PPP loan maintain payroll and use the funds for eligible purposes, the loan turns into a grant and is forgiven. If a business has already laid off employees, it has until December 31, 2020, to rehire these employees in order to be considered to have maintained payroll. There are also a number of exemptions to maintaining payroll. See PPP Loan Forgiveness Information for more on this.
The covered loan period for this program begins on February 15, 2020, and ends on December 31, 2020. There is no fee for the loan and no personal guarantee or collateral are required. Businesses and nonprofits with 500 or fewer employees, entities that meet the current Small Business Administration size standards, sole proprietorships, independent contractors, the self-employed, and businesses with multiple locations if they employ no more than 500 employees per physical location.
A business that was in operation on February 15, 2020, and had employees for whom it paid salaries and payroll taxes or independent contractors is eligible for a PPP loan. PPP loans will be distributed in the community by SBA-approved lenders or Department of Treasury-approved PPP lenders.
Recipients of a PPP loan can use the funds for:
Borrowers seeking loan forgiveness must use at least 60 percent of the PPP loan for payroll. According to the SBA, if a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.
“Payroll costs” include:
“Payroll costs” do not include:
Borrowers can seek PPP loan forgiveness on the earlier of 24 weeks after the date of the origination of the loan or December 31, 2020. (Borrowers who received a loan when the covered period was eight weeks can elect to keep the eight week period). Loan forgiveness will be in an amount equal to the sum of the following costs incurred and payments made during the covered period.
The amount of loan forgiveness will be reduced proportionally by any reduction in employees during the covered period compared to prior periods. Additionally, the loan will be reduced by the reduction in pay of certain employees in excess of 25 percent. As stated earlier, businesses can rehire employees already laid off and not be penalized.
To apply for loan forgiveness, lenders will require the following:
Lenders must decide if the recipient of the PPP loan receives forgiveness no later than 60 days after the lender receives an application for loan forgiveness. Canceled indebtedness will not be included in the recipient’s taxable income.
The interest rate for PPP loans is 1 percent. For any portion of a PPP loan that is not forgiven, the loan term was originally two years. However, the PPP Flexibility Act passed in June 2020 changed the minimum loan term to five years for new loans. (August 8, 2020, is the last day a new loan can be approved). The PPP Flexibility Act does allow lenders and borrowers with pre-existing loans to mutually agree to modify the loan term to five years. Talk to your lender for more information.
Payments of principal and interest are deferred until the date loan forgiveness is remitted to the lender. Borrowers who do not apply for forgiveness will not begin repayment until 10 months after the last day of the covered period (either the eight-week period, 24 week period, or December 31, 2020, depending on the individual circumstance. However, interest will continue to accrue over this period.
Once the PPP loans are made available, businesses cannot have both an SBA disaster loan and a PPP loan for the same purposes. However, the act allows businesses with an Economic Injury Disaster Loan (EIDL) related to COVID-19 to apply for a PPP loan with the option to refinance that loan into the PPP loan. If a business has received an emergency EIDL grant award (described in the following section), that amount will be subtracted from the amount forgiven under the PPP.
Additionally, until January 1, 2021, the maximum 7(a) express loan is $1 million.
The act establishes an emergency grant of up to $10,000 for eligible entities that have applied for the Small Business Administration’s Economic Injury Disaster Loans (EIDL) due to COVID-19. Eligible entities can request an advance on that loan which the SBA must distribute within 3 days. A business that receives an EIDL grant is not required to repay the advance, even if the business is later denied an EIDL loan.
Additionally, eligibility for EIDL loans will expand to include those operating as a sole proprietor or independent contractor and private non-profits during the covered period from January 31, 2020, to December 31, 2020.
During the covered period, the SBA will waive personal guarantees on advances and loans below $200,000, the requirement that an applicant needs to have been in business for the 1-year period before the disaster, and the credit elsewhere requirement.
The SBA will approve businesses for an EIDL loan based on:
Recipients of the EIDL emergency grant can use the funds for:
The act provides grants for training, resources, and education in the amount of:
The law appropriates $17 billion for loan subsidies for certain loan payments. A covered loan is a 7(a) (including Community Advantage), 504, or microloan product. Paycheck Protection Program (PPP) loans are not covered. While this relief covers current borrowers under the aforementioned loans, it will also be available to new borrowers who take out loans within six months of the President signing the bill into law.
The SBA is required to pay the principal, interest, and any associated fees that are owed on the covered loans for a six month period starting on the next payment due. Loans that are already on deferment will receive six months of payment by the SBA beginning with the first payment after the deferral period. Loans made up until six months after enactment will also receive a full 6 months of loan payments by the SBA.
The SBA must make payments no later than 30 days after the date on which the first payment is due, including if the loan was sold on a secondary market. Further, the SBA must encourage lenders to provide deferments and allows lenders, up until one year after enactment of the act, to extend the maturity of SBA loans in deferment beyond existing limits.
The law increases eligibility for unemployment insurance to include the following circumstances:
An individual is not eligible if he/she has the ability to telework with pay or is receiving paid sick or other paid leave benefits.
The expanded unemployment assistance provides people who are unemployed with an additional $600 per week on top of normal compensation from the state for up to four months until July 31, 2020. The law also allows for an additional 13 weeks on unemployment insurance on top of what states currently offer. However, total time on unemployment cannot exceed 39 weeks. The expanded coverage period will begin on January 27, 2020, and end on December 31, 2020.
States are incentivized to waive the traditional one-week waiting period for unemployment compensation.
Individuals are eligible for a one-time direct payment equal to:
The payment amount will be based on your adjusted gross income for your 2019 tax return. If you have not yet filed your 2019 tax return, the amount will be based on your 2018 tax return. If you did not file in 2018, the amount can be based on your 2019 Social Security Benefit Statement or Social Security Equivalent Benefit Statement.
The payment amount will be reduced based on how much your income exceeds:
The act allows the penalty for early withdrawal from an eligible retirement plan to be waived for coronavirus-related distributions of up to $100,000. The amount distributed may be repaid over a three-year period.
Coronavirus-related distributions means any distribution from an eligible retirement plan made on or after January 1, 2020, and before December 31, 2020, to an individual:
Additionally, the act temporarily waives required minimum distributions, the amount individuals are normally required to withdraw from certain retirement accounts, for calendar year 2020. By temporarily waiving this requirement, individuals are not forced to sell investments that may have recently fallen substantially in value.
The act provides for advanced refunding of the payroll tax credits enacted in the Families First Coronavirus Response Act. The credit for required paid sick leave and the credit for required paid family leave can be refunded in advance using forms and instructions the IRS will provide. The IRS is instructed to waive any penalties for failure to deposit payroll taxes if the failure was due to an anticipated payroll tax credit.
The CARES Act amends the Families First Coronavirus Response Act’s definition of an eligible employee for paid leave to include an employee who was laid off by an employer no earlier than March 1, 2020, had worked for the employer for at least 30 of the last 60 calendar days prior to being laid off, and was rehired by the employer.
Eligible employers can receive a refundable employee retention credit equal to 50 percent of the qualified wages (of up to $10,000 per employee) for each employee in the calendar quarter. The number of employees is determined by the average number of employees in 2019.
Eligible employers are employers who were carrying on a trade or business during 2020 and for which the operation of that business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to the COVID-19 outbreak. Employers that have gross receipts that are less than 50% of their gross receipts for the same quarter in the prior year are also eligible, until their gross receipts exceed 80% of their gross receipts for the same calendar quarter in the prior year.
For employers with more than 100 employees, wages eligible for the credit are wages that the employer pays employees who are not providing services due to the suspension of the business or a drop in gross receipts. For employers with 100 or fewer employees, all wages paid qualify for the credit.
This does not apply to businesses that receive a forgivable loan under the Paycheck Protection Program.
The law delays payment of 50 percent of 2020 employer payroll taxes until Dec. 31, 2021; the other 50 percent will be due Dec. 31, 2022.
This does not apply to businesses that receive a forgivable loan under the Paycheck Protection Program.