The $2.2 trillion federal stimulus package, signed by President Donald Trump on March 27 amid the COVID-19 global pandemic and the resulting economic slump, will inject hundreds of billions of dollars in tax breaks, grants and other benefits for businesses that have been slammed by the outbreak.
Business that have been closed as governments attempt to enforce social distancing mandates to slow the spread of the disease already need financial assistance. The package includes a $260 billion to help shore up state unemployment funds following a surge in jobless claims; $300 billion for direct cash payments; tax credits to help businesses keep workers on the payroll; $350 billion of forgivable loans for small businesses; tax deferrals for businesses and individuals; and $500 billion of relief for some of the nation’s largest corporations.
“They hit the hot button issues, which are cash flow issues, [and] the employment issue or the unemployment issue,” said Tom Bracken, president and chief executive officer of the New Jersey Chamber of Commerce.
Many of the loans – $350 billion worth – will be awarded via the U.S Small Business Administration.
“People are afraid they’re going to run out of cash. They’re concerned about, from the standpoint of… paying their employees,” Bracken said. “By getting access to loans, some of which will be forgiven for maintaining their employment base, that’s cash flow – money they wouldn’t have had – giving them some breathing room.”
Workers who have lost their jobs would receive an additional $600 above their base unemployment compensation. That would last through July, or four additional months, during which time those workers would receive their entire regular take-home pay. It would also apply to self-employed and “gig economy” freelance workers.
Businesses can furlough employers rather than outright lay them off, so that those workers can keep their health benefits while collecting unemployment.
Many of the tax breaks will be administered by the U.S. Treasury and will be subject to an application process. “The success of them is going to be a function of the ease of filing out the application and the speed of turning the application over and the speed of getting the money on the street,” said Michael Affoso, director of government relations for the financial institution trade group NJBankers.
“If the applications turn out to be 50-page applications, it’s going to be a problem.”
The $1,200 checks to individuals are expected to arrive in mailboxes “withing three weeks, U.S. Treasury Secretary Steven Mnuchin said on the CBS News program Face the Nation on March 29.
“Psychologically, the business community will see help coming, before there was a lot of talk about help,” Bracken said. “Psychologically that will have a big benefit because people will know that help is coming.”
Many of the tax breaks will not be available right away, but rather, when business owners file their taxes in the coming months and years.
“You’re going to have to file a 2019 tax return” to get the credits, said Daniel Mayo, national lead, Federal Tax Policy at tax services and accounting firm Withum. “If you didn’t file it, it’s going to be on the 2020 tax return.”
The tax credits and benefits would ultimately mean more money for cash-strapped businesses.
Business owners who reduced their operations because of the COVID-19 outbreak will be eligible for a refundable payroll tax credit equal to half of the wages they paid between March 13 and Dec. 31, 2020, and capped at the first $10,000 they pay each employee.
Companies with fewer than 100 workers can claim the credit for each employee, while those with more workers can claim the credit for employees retained but not working for the company.
Businesses and self-employed individuals can defer their share of the Social Security tax payments, which are 6.2 percent in the case of the former, until January 2021. Half of that would be owned by the end of 2021 and the second half a year later.
The federal stimulus bill also loosens the rules around the kinds of deductions that business owners can make on their tax returns. For one, the bill increases the amount of expenses and losses that business owners can deduct on their tax returns. And the package adds in more years worth of income that could be deducted.
For example, net operating losses – when a business has more expenses than they do income – can now be carried forward from five years ago. The business owner can claim the deduction at the 35 percent tax rate, rather than the 21 percent rate enacted after the 2017 tax law.
“It also removes the 80 percent of taxable income limitation, retroactively, so that NOLs can fully offset taxable income” for 2018, 2019 and 2020, Mayo said.
With 35 percent, “you get more ban for your buck, more value for your losses,” Mayo said.
The stimulus raises how much of the interest expenses – that is, interest paid on any money the business borrows – from 30 to 50 percent.
Ultimately, that means a bigger tax refund for business owners, Mayo said.
“It’s going to be big. You allow a taxpayer to use a lot of the loses and bring their money back,” he said.
Editor’s note: This story was updated at 9:23 a.m. EST on April 1, 2020 to correct the spelling of Daniel Mayo’s name and his title.