970 McHenry Avenue, Crystal Lake, IL 60014
Botto Gilbert Lancaster, PC

Call Today for Your FREE Consultation

Call Us800-338-3833 | 815-338-3838

Facebook Twitter LinkedIn

What Small Businesses Should Know about CARES Act Tax Relief and Other Miscellaneous CARES Act Business Programs During the COVID-19 Health Emergency

Posted on in BGL Law

Care Act

The cornerstone of federal legislation for small business relief is the CARES Act Paycheck Protection Program (“PPP”). 

The CARES Act set aside $349 billion for government-guaranteed loans for small businesses, to cover eight weeks of payroll and other expenses.

However, despite PPP loans having only been made available as of April 3, 2020, the program was on track to exhaust its initial allocation of nearly $350 billion by the early morning hours of Thursday, April 16, 2020, with the SBA announcing that it had approved more than 1.5 million loans valued at more than $324 billion as of late Wednesday, April 15, 2020, with more loans continuing to be processed.  Meanwhile, Congress had already begun days before the wrangling over additional PPP funding.

            Because of the difficulties already faced with implementation of PPP loans, however, businesses should also be mindful of PPP in context of other financial relief programs, including:

1).        Loans programs, including: (a) the SBA Economic Injury Disaster Loan Program to small businesses affected by COVID-19; (b) subsidies for existing SBA loans; and (c) SBA Express Bridge Loans;

2).        Families First Coronavirus Response Act payroll tax credits to certain small to mid-size employers, to reimburse the cost of providing coronavirus-related leave to employees; and

3).        State relief programs, such as the Illinois Small Business COVID-19 Relief (“ISBCR”) Program.

In addition to the foregoing federal and State programs providing financial support in the form of loans and grants, businesses should be aware of the following additional business assistance available via the CARES Act:

1).        Business tax relief; and

2).        Chapter 11 Bankruptcy relief, and other miscellaneous provisions.

The attorneys at Botto Gilbert Lancaster, LLC, are experienced in all aspects of business planning and litigation, to assist business in navigating through the rapidly evolving landscape of business laws, rules and regulations as the Nation deals with the COVID-19 health emergency – and beyond. 

For further information, or legal and practical guidance on these subjects, contact Botto Gilbert Lancaster, PC, at (815) 338-3838, or by email.  

CARES Act Tax Relief and Other Miscellaneous CARES Act Business Programs

1.    Business Tax Relief (CARES Act)

a).        Employee Retention Credits

The CARES Act allows eligible employers a refundable tax credit for the employer’s share of the 6.2% Social Security tax (the “SSI Tax Credit”). The potential tax credit is for 50% of qualified wages for each employee not to exceed $10,000.00 in qualified wages (including health plan expenses) paid to each employee.

Eligible employers include those which: (a) have had operations fully or partially suspended because due to orders from a governmental authority related to COVID-19; or (ii) have had gross receipts decline by more than 50% in a calendar quarter for the same quarter in 2019 (and will remain eligible until the earlier of (i) gross receipts exceeding 80% relative to the same quarter in the prior year, or (ii) December 31, 2020.

For employers with more than 100 employees (based on 2019 employment levels), qualified wages are limited to wages paid to employees who were not providing services due to the COVID-19 crisis.

The SSI Tax Credit is not available if the employer receives a covered Section 7(a) small business loan from the SBA.

b).        Payroll Tax Deferral

Employers may defer payroll taxes (the employer’s share of the 6.2% Social Security tax on wages), beginning on March 27, 2020 and ending on December 31, 2020.  Deferral is also permitted for the equivalent portion of self-employment taxes. The deferred amounts are payable in two equal installments, due on December 31, 2021, and the remainder due on December 31, 2022.

This deferral of payroll taxes does not apply to employers who have had a PPP loan forgiven.

c).        Net Operating Losses

The CARES Act allows businesses to carry back net operating losses incurred in 2018, 2019, and 2020 for 5 years (excluding offset to untaxed foreign earnings transition tax).

Previously, net operating losses could only be carried forward, so that businesses now have the ability to carry back net operating losses to offset income that was taxed at 35% before 2017 tax reform.

In addition, for taxable years beginning before January 1, 2021, taxpayers can offset 100% of taxable income with carryovers and carrybacks, instead of the previous limitation of such offsets to 80% of taxable income.

Businesses can also utilize IRS quick refund procedures (Form 1139) to claim any consequent refunds by operation of these new rules.

 d).       Business Interest Deductions

With the exception of defined small businesses, IRC Section 163(j) generally limits the amount of business interest that can be deducted by most taxpayers in a taxable year to 30% of the adjusted taxable income of such taxpayer for such taxable year.

CARES Act Section 2306 amends Section 163(j) for “any taxable year beginning in 2019 or 2020,” so that taxpayers may elect to increase the business interest deduction from 30% to 50% of adjusted taxable income.

In addition, for tax years beginning in 2020, taxpayers can elect to utilize their adjusted taxable income for the for the last taxable year beginning in 2019 for purposes of determining the deductibility of business interest expense, which could increase the business interest deduction.

e).        Suspension of Non-Corporate Loss Limitation

IRC Section 461(l)(1)(B) prohibits the deduction of “excess business losses” by non-corporate taxpayers during taxable years 2018 through 2026. The CARES Act removes this limitation for taxable years 2018 through 2020, so that the prohibition will apply only for taxable years 2021 through 2026.

f).         Fixing the “Retail Glitch”

            The CARES Act also corrects what has been described as the “retail glitch” for qualified improvement property as defined by IRC Section 168.  The legislative history indicates that Congress intended for “qualified improvement property” -- defined as “any improvement to an interior portion of a building which is nonresidential real property is such improvement is placed in service after the date such building was first placed in service” -- to have a 15-year depreciation period, making such improvements eligible for 100% bonus depreciation.

The CARES Act corrects drafting errors in the enacted bill which subjected qualified improvement properties to a 39-year depreciation period and rendered them ineligible for 100% bonus depreciation.

2.  Miscellaneous CARES Act Programs

a).        Extended Bankruptcy protection.

            CARES Act Section 1113 modifies Title 11 of the United States Bankruptcy Code to define a debtor as “a person engaged in commercial or business activities… that has aggregate noncontingent liquidated secured and unsecured debts“ not in excess of $7.5 million.

            The Act generally calls for modification of any Chapter 11 reorganization where a debtor has expired “has experienced a material financial hardship due, directly or indirectly, to the coronavirus disease 2019,“ with any such amended plan to be limited to a repayment period of seven years after the date of first payment.

b).          Trademarks, Copyrights and Patents.

The CARES Act, Division B, allows the Director of the Patent and Trademark Office to toll, waive, adjust, or modify any timing deadline established by the Trademark act.

The Act also allows for the Register of Copyrights to adjust or modify any time frames for purposes of the copyright act due to disruptions from COVID-19.

Illinois State Bar Association State Bar of Wisconsin Crystal Lake Chamber of Commerce Illinois Trial Lawyers Association McHenry County Bar Association
Back to Top