Information for Arkansas Small Businesses on New SBA Financing and Tax Relief for COVID-19 Crisis
The recently enacted CARES Act includes important provisions to help Arkansas small businesses retain their employees during the COVID-19 crisis. These benefits are potentially available to all employers and, in some cases, the federal government will cover many of the costs associated with continuing to pay your employees for a limited period of time. The following constitutes a general summary of some of the key provisions impacting small businesses.
- Small Business Administration (SBA) Paycheck Protection Loan Program: What may be the most popular CARES Act program for small businesses, the Paycheck Protection Program ("PPP") creates a new streamlined SBA loan option to provide eligible businesses with cash to meet payroll and certain other fixed costs (such as qualified rent, qualified interest on mortgages, and utility payments). The maximum loan amount would be 250% of the employer’s average monthly "payroll costs", capped at $10 million. The law expands the previous SBA definitions of small employer in a number of ways to increase the availability of these loans, and makes changes in the traditional SBA loan process that is intended to speed-up the process of obtaining a loan. Additionally, after the borrowing business demonstrates that the loan proceeds were actually used within the eight weeks following loan origination to maintain previous payroll or pay those other fixed costs discussed above (limited to 25% of the amount forgiven), then the loans and any interest due would be eligible for very generous tax-free loan forgiveness .
- 50% Employee Retention Tax Credit: Another option allows employers (regardless of size) that are uniquely affected by COVID-19 to claim a refundable tax credit against the employer portion of payroll tax equal to 50% of certain wages paid to an employee between March 13, 2020 through the end of the year. Only $10,000 of wages could be taken into account for any employee. This 50% credit would be available to businesses (i) that have had their operations fully or partially suspended by government order due to COVID-19 or (ii) that experienced a 50% decline in gross receipts during a 2020 calendar quarter when compared with the same quarter in 2019.
- Social Security Tax Deferral: Another provision that is available to employers of all sizes is the ability to defer the payment of the employer portion of Social Security taxes (6.2% of wages) for the remainder of 2020. Fifty percent of those deferred taxes would have to be repaid by the end of 2021, with the remainder due by the end of 2022.
Arkansas small businesses must make some choices as to which programs are best suited for them. All of the above programs may not be used together. We are here to help guide our clients through these complex decisions.
- If you obtain one of the new SBA PPP loans, you are not eligible for the 50% employee retention tax credit.
- If you have a new SBA PPP loan forgiven, you cannot take advantage of the Social Security tax deferral.
- If you claim the 50% employee retention credit, you will no longer be eligible for an SBA PPP loan.
- If you take advantage of the Social Security tax deferral, you will no longer be eligible to have your SBA PPP loan forgiven.
It is critical that Arkansas small businesses carefully evaluate their eligibility for and the benefits of each of these options, since the amount of assistance provided by the federal government could vary greatly depending on which path you choose.
Additional guidance is being issued by applicable government agencies on a weekly basis. For more guidance on the programs discussed above and others, please see SBA’s Coronavirus Small Business Guidance and Loan Resources.
Please contact Rufus Wolff or Vince Ward if we can assist you with advice and counsel as to your course of action and implementing the choices you make.