Coronavirus Relief for Small Businesses, Freelancers and the Self-Employed
All across the U.S., small businesses, freelancers and the self-employed have experienced a lasting impact from COVID-19.
They don’t regularly get to collect unemployment benefits like many American workers. Instead, they have to rely on their reserves, if they have them.
If they don’t, they have to scramble to find ways to keep their businesses afloat. The alternative is often shutting them down altogether.
Their revenue could dry up quickly without a program to help them weather the financial storm that was coming.
Congress has passed legislation, including the CARES Act, to help solve some of these problems that small businesses, freelancers and self-employed individuals are facing in these unique times.
Many programs have been made law by Congress and constantly in development and discussion (always check with your business accountant to verify these programs).
Banking Resources for Small Businesses
Banks across the country are working with small business banking clients during a time of financial hardship -- whether that means fee waivers or various programs to help with small business loans.
Because a large number of clients are requesting financial assistance during these times, customer service departments are struggling to keep with the calls. Find out how you can best reach bank customer service without waiting on hold for hours.
Whether you're opening a new business or running an existing business, the right business checking account is vital to your financial operations. Compare some of the best options available and learn how to choose the best one for your business.
Find out which business credit cards are worth considering to finance business purchases, simplify cash flow, and help with recordkeeping.
Changes to Net Operating Loss Carryback Rules
If you have or think you’ll have a net operating loss in 2018, 2019 or 2020, a new rule allows you to carry back the losses for five years.
The previous 80% of taxable income limit is also suspended.
This allows you to amend previous tax returns. This new rule could result in an immediate benefit to your business’s tax situation.
Amending a tax return can be an annoying process. It could be worth it if you can get a tax benefit from this change, though.
Payroll Tax Deferral of Due Date
Social Security payroll taxes owed for the employer portion of payroll taxes can be delayed.
This is to help businesses deal with cash flow problems from reduced business.
Unfortunately, the amount owed still has to be paid.
The employer pays 6.2% Social Security tax. In addition, the employee also pays 6.2% Social Security tax. This results in a total tax paid of 12.4%.
The employee portion is still due when owed. Only the employer portion can be delayed.
The employer side Social Security taxes that can be delayed run through December 31, 2020. Starting then, you need to pay the current employer side Social Security taxes when regularly due.
Half of the delayed tax owed is due on December 31, 2021. The other half is due on December 31, 2022.
This is in addition to any amounts you would regularly owe during these times.
This change can help you pay other expenses today.
Unfortunately, it could put you in a rough spot down the road.
Some people may end up spending the money now to cover expenses.
The problem comes when they can’t afford to pay it on top of their ongoing expenses in the future.
Employee Retention Credit
Small businesses may be able to claim an employee retention credit. This is a refundable tax credit that can be used for certain payroll tax liabilities.
The credit is equal to 50% of qualifying wages of up to $10,000 per employee that qualifying employers pay from March 12, 2020 to January 1, 2021.
In order to qualify, your business must meet one of these two criteria:
- Your business has been disrupted due to virus-related shutdowns
- Your business has a decrease in gross receipts of 50% or more compared to the same quarter in the prior year
Employees must be retained by the employer and paid, but cannot be working due to the crisis if your company has over 100 employees.
Businesses with 100 or fewer employees are allowed to include all qualifying employee wages.
Freelancers and Self-Employed People Gain Access to Unemployment
Freelancers and self-employed people don’t usually have access to unemployment benefits. The CARES Act changes this. Now, independent contractors and self-employed workers qualify.
Benefits are increased by an additional $600 per week over traditional unemployment benefits.
If your state has a one week waiting period, that will not apply.
The federal government will cover the costs of the first week.
Benefits are extended for an additional 13 weeks beyond what your state normally offers in many cases. These benefits last through December 31, 2020.
All of this sounds great in practice.
Sadly, state unemployment benefits administrators are extremely overwhelmed due to the high volume of claims.
Emergency Economic Injury Disaster Loan Advance
Some small businesses can apply for an Economic Injury Disaster Loan (EIDL).
Those that apply are also eligible to get an EIDL advance of up to $10,000. This $10,000 advance is essentially a grant that does not have to be repaid.
You’re supposed to be able to get the $10,000 advance whether you’re ultimately approved for an EIDL or not.
The program is for businesses that have less than 500 employees. This program also includes sole proprietorships, independent contractors and self-employed people.
According to the law, these $10,000 advances are supposed to be paid within three days of applying. In practice, that hasn’t happened.
EIDL loans can be up to $25,000 without providing collateral and up to $200,000 without providing a personal guarantee.
Depending on your income, you may qualify for a stimulus check. This even includes small business owners, self-employed individuals and freelancers.
Calculations for the checks use adjusted gross income (AGI), your filing status and certain other criteria to determine how much you could get.
People with a single filing status can get $1,200 plus $500 per qualifying child if their AGI is $75,000 or less.
People with married filing jointly filing status can get $2,400 plus $500 per qualifying child if their AGI is $150,000 or less.
Early Withdrawal Penalty Waived for Certain Retirement Withdrawals
Early withdrawals from particular retirement accounts come with a 10% penalty. If you meet the guidelines in the CARES Act, that 10% penalty won’t be incurred.
Read more about this in our post that covers all of the details.
Should You Take Advantage of Any of These Programs?
These programs were created to help small businesses survive financially through these rough times.
However, some of these programs may not be a good fit for you. Others may be a great option to help your business survive.
If you’re not sure which programs are a good fit for you, talk to a professional that has experience with the program. They can help you determine if you qualify.
If you do, you must decide if the risk or cost is worth the benefit.
Make sure that one program doesn’t disqualify you from using another. Many of these programs do not allow you to double-dip.
That means you’ll need to find the best combination of options for you.