The Coronavirus Aid, Relief and Economic Security (CARES) Act dwarfs prior efforts by US lawmakers to take on economic crises and natural disasters. While key elements of this bill are untested – and controversial – it, along with the Family First Coronavirus Response Act (FFCR) passed earlier in March, and the actions of President Donald Trump’s administration, created numerous programs to help snow and ice removal businesses weather the continuing crunch.
The most popular, and well-known provision is providing one-time direct payments of $1,200 per adult with income below a $75,000 ceiling, $2,400 per married couples and $500 per child. Above the ceiling, payments will be gradually reduced, disappearing after an individual’s income reaches $100,000.
The newly-passed legislation, while providing funding tax breaks and other subsidies, includes an increase in the deduction ceiling for the interest paid by a business from the 39 percent level created by the Tax Cuts and Jobs Act to 50 percent. The new law also provides greater flexibility for snow contractors and other businesses to deduct losses against taxable income, but first, addressing unemployment.
THE UNEMPLOYMENT CRISES
The new law allocates $250 billion to expand unemployment insurance to more workers and lengthen the duration to 39 weeks (up from the normal 26 weeks). It includes $600 extra each week that would be provided for four months.
To help bring back workers already laid off, the eight weeks of unemployment assistance will be retroactive to February 15, 2020. But, that’s not all, already o the books are the following:
Sick Leave. Until Dec. 31, 2020, some employers will be required to pay sick leave to employees. Fortunately, there is a compensating, 100 percent tax credit, a direct reduction of their tax bill rather than a deduction.
Tax Credit. An employee retention tax credit that it is estimated will eventually provide $50 billion to businesses that retain employees on their payroll will cover 50 percent of workers’ paychecks up to $10,000. A snow removal and ice management business will also be able to defer payment of the 6.2 percent Social Security payroll tax for two years.
FPUC. The Federal Pandemic Unemployment Compensation program is aimed at self-employed and contract workers who are typically not eligible for unemployment payments. Unemployment insurance now extends to the self-employed including independent contractors, freelancers and to the so-called “gig” workers. Those with a limited liability company (LLC) or S corporation qualify.Lost Wages. Also included are incentives for work-sharing and a program to cover aportion of lost wages for workers whose hours have been reduced, designed to incentivize businesses to retain workers by employing them for less time.
PAYING FOR IT ALL
The CARES Act contained a number of programs and funding designed to help every snow removal and ice management business weather the financial impact of the Coronavirus Pandemic, including:
- Mostly for businesses with more than 500 employees, the latest stimulus bill provides $500 billion to back loans. However, any business receiving a loan will be subject to a ban on stock buybacks and curtailment of executive bonuses.
- Zero-interest loans for businesses with fewer than 500 employees – loans that could be forgiven under certain circumstances such as not firing workers.
It also includes provisions for:
Paycheck Protection Loans. The CARES Act earmarked $349 billion for loans to small businesses — to be spent on rent, payroll and utilities treated as a grant that does not have to be repaid. The SBA will guarantee loans of up to $10 million, with terms of up to 10 years and interest rates of up to 4 percent to snow removal and ice management businesses with fewer than 500 employees. The actual loans are being provided by lenders, including banks and credit unions. Eligible businesses can get loan deferment for six months to a year with the loan forgiven if the business maintains its payroll for eight weeks at employees’ normal salary levels.
Expanded Economic Injury Disaster Loans. The SBA is provided expanded access to working capital loans of up to $2 million to small businesses impacted by Coronavirus. These loans carry an interest rate of 3.75 percent with loan terms that vary by applicant, up to a maximum of 30 years. The expanded program for sole proprietors and businesses with fewer than 500 employees doesn’t require personal guarantees on loans under $200,000, while payments can also be deferred for up to four years.
Emergency Grants. SBA Economic Injury Disaster Loan applicants can qualify for grants of up to $10,000, to be used to provide employee sick leave, maintain payroll or meet other needs such as paying rent even if denied a loan.
Keeping in mind that “lost income” is not a legitimate tax deduction, other provisions in the tax law may help snow and ice removal business owners recover financially from the tax impact of the Coronavirus Pandemic and other disasters, especially when the federal government declares their location to be in a major disaster area.
Both individuals and businesses in a federally declared disaster area can get a faster tax refund by claiming losses related to the disaster on the tax return for the previous year, usually by filing an amended tax return. Regular business losses must be deducted from this year’s income – if there is any,
A Net Operating Loss (NOL) occurs when a business has more tax deductions than taxable income in a given year. NOL carrybacks formerly generated a refund of taxes paid in earlier years that provided an often-badly needed infusion of cash. Today, most NOLs arising in tax years after 2017 can only be carried forward. What’s more, for losses arising in taxable years beginning after Dec. 31, 2017, the NOL deduction is limited to 80 percent of taxable income (determined without regard to the deduction).
And, don’t forget, while the snow removal or ice management operation can’t get this tax break if it is a pass-through entity (such as sole proprietorships, partnerships or S corporations), their owners can apply their NOL on their personal tax returns. Regular corporations are, of course, taxed at the corporate level and the NOL carryforward is applied on the corporate tax return.
Thanks to the FFCR Act passed early in March, employers providing paid family and medical leave to their employees may claim a tax credit that has been extended through 2020. There are similar tax credits for self-employed individuals.
The Treasury Department, the IRS and the Department of Labor earlier announced that small and midsize employers can take advantage of two new refundable payroll tax credits. Both are designed to immediately and fully reimburse them, dollar-for-dollar, for the cost of providing Coronavirus-related employee leave.
Until Dec. 31, 2020, certain employers are required to pay sick leave to specified employees with compensating 100 percent tax credit. Under the FFCR Act, employers must provide 14 days of paid sick leave if workers are ill or quarantined because of the virus or have to care for an infected family member.
Although the provision requiring employers to pay sick and medical leave to workers has been extended to include the 2020 tax year, employers with fewer than 50 employees are eligible for an exemption from the requirement to provide leave to care for a child whose school is closed or child care is unavailable.
To take immediate advantage of the paid leave tax credits, a snow removal or ice management business can retain and access funds that they would otherwise be paid to the IRS in payroll taxes. If those amounts are not sufficient to cover the cost of paid leave, employers can seek an expedited advance from the IRS using a soon-to-be released, streamlined claim form.
SELF-HELP CORONAVIRUS SURVIVAL
Many business owners and managers busy attempting to fathom the steady stream of new government programs, plans and benefits, may be overlooking remedies that already exist. Consider the following:
Line-of-credit. A pre-established line of credit allows the snow and ice removal business to borrow in increments as needed, repay it and borrow again as long as the credit line remains open. Typically, the operation is required to pay interest on any balance borrowed and a lesser amount for having ready access to the unexpended amount of the line of credit.
Business Interruption Insurance. This is coverage that replaces business income lost in a disaster that many business owners are unaware of. Business Interruption Insurance is not sold as a separate policy but is either added to a property/casualty policy or included in a comprehensive package policy as an add-on or rider.
Extra Time. And don’t forget those extended deadlines for both filing tax returns and paying taxes. Although the March 15 tax filing deadlines for many businesses have passed, individuals, including many snow and ice removal contractors, now have until July 15 to file. Best of all, if money is owed the IRS, delayed payments will be interest and penalty-free for 90 days.
As this ever-evolving fight against the Coronavirus continues, attention must be paid to new developments. So, with more likely on the way. As always, the ever-changing response to the pandemic and the complexity of the rules when dealing with its economic impact, make professional assistance advisable.