These are tough times for everyone, but if you are a business owner you have a few more tough decisions to make right now.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, which passed on March 27, authorized a number of relief and aid programs for individuals and businesses. But figuring out how to move forward with applications and quickly getting needed relief is not easy.
Case in point – the CARES Act authorizes businesses to defer paying the employer contribution of payroll taxes (approximately 7 percent of payroll) through the end of this year with what is essentially a short-term, interest-free loan. This money must eventually be paid. Half is due on December 31st, 2021 and the other half on December 31st, 2022. While this sounds good and allows businesses to hang on to some cash during these difficult times, there is another program that may be more helpful … and you cannot use both. In other words, these offers cannot be combined.
The Paycheck Protection Program, also authorized in the CARES Act, allows small businesses to apply for a loan that can be partially or completely forgiven. The loan can be up to 2.5 times your average monthly payroll and associated costs. The loan amount will be based upon 2019 expenses for wages paid by your business (up to $100,000 per employee), costs for retirement plans, health insurance, self-employment earnings (again capped at $100,000/year) and state or local taxes imposed on wages.