On Monday, December 21, 2020, Congress passed an additional COVID-19 package that contains $900 billion worth of economic relief for numerous government programs across the US, loans for small businesses, vaccine distribution, and a second round of stimulus checks. The bill is pending the President’s signature and may result in further negotiations and modified terms; we will communicate additional details as they are available. For now, click HERE for a brief overview of key provisions within the (5,500+ page) package approved by Congress earlier this week.
In 2018, as part of the Tax Cuts & Jobs Act, the gift and estate tax exemption doubled to historic levels – from $5.6 million to $11.2 million. After indexing for inflation, this year the exemption is $11.58 million, $23.16 million for a married couple, and it is currently scheduled to remain at this level through 2025.
Whether it’s due to the $4 trillion of COVID-19-fueled fiscal challenges, or a Blue Wave in November that will give Biden the power to pass sweeping tax reform, many high net worth individuals are cautious that a reduction in the exemption could be coming sooner than 2025 resulting in significant estate tax exposure for their family. Click here to read more and for a chart comparison of the major tax policy differences between the two candidates.
With the 2020 election around the corner, we thought it would be helpful to outline the presidential candidates’ tax proposals. While it is difficult to determine which policy initiatives either candidate will eventually pursue, we will continue to monitor and keep you informed of developments to both plans. Please click here to read more.
As a follow up to our overview of The CARES Act sent last week, the third Federal stimulus bill in response to COVID-19, I wanted to provide you with a quick update on additional guidance recently issued on the two key SBA loan programs available to business owners: the Payroll Protection Program (this is the program that will issue forgivable loans and every business owner should know about) and Economic Injury Disaster Loans.
The Payroll Protection Program (“PPP”)
- Signed into law on Friday, these are SBA loans administered by banks. $350 billion of loans will be issued.
- Businesses with < 500 employees, as well as self-employed individuals, can apply for a loan of up to 2.5x their average monthly payroll costs. Payroll costs include wages, health insurance, and retirement plan contributions, capped at an annual salary of $100,000 per employee. For example, if your business average monthly payroll is $50,000 the maximum loan is $125,000.
- If the loan is used for certain expenses (payroll costs, rent, utilities, etc.) during the 8 weeks following the origination of the loan, and as long as there is not a reduction in the number of employees or a greater than 25% reduction in wages paid, the borrower is eligible for complete loan forgiveness. This is a tax-free grant.
- The application was just released yesterday, a copy is attached for your review, and we understand that banks will start processing most loans this Friday (April 3rd) and next Friday (April 10th) for any self-employed individuals or independent contractors.
- There are two things that we recommend you do at this time:
- Calculate your average monthly payroll costs for the 12 months from April 2019 through March 2020 (you will likely need to substantiate this with payroll returns filed over that time period, so you should have those ready as well), and
- Contact your CURRENT business bank/banker. As mentioned, these forgivable loans will be administered by banks, and we have heard that bankers intend to take care of their existing customers first. Many lenders who have not done SBA loans in the past will start processing PPP loans. Each bank will have its own list of required documents that you will need to provide.
If we can help with the average monthly payroll calculations, or working through the requirements of maintaining your pre-COVID-19 payroll and/or reinstating terminated employees to meet this test, please let us know.
Economic Injury Disaster Loans (“EIDL”)
- These loans are administered by the SBA directly, not banks (Online Application: https://disasterloan.sba.gov/ela/).
- Businesses with < 500 employees, as well as self-employed individuals, can apply for loans of up to $2 million. Interest rates will be low, and terms will be 15 to 30 years.
- Eligible businesses may receive an advance of up to $10,000 within 3 days of submitting a loan application.
- Advances made prior to loan approval do not need to be repaid, even if the loan application is denied.
- Businesses will likely be able to receive a much larger loan under the EIDL compared to the PPP, to be used for a variety of operating expenses over a longer time period, but these loans are not forgivable.
As additional guidance is issued we will continue to keep you updated.
Yesterday evening, the Senate passed an updated version of the Coronavirus Aid, Relief and Economic Security (CARES) Act (Stimulus Phase III). The bill is intended to be a third round of federal government support for individuals and businesses and is the product of negotiations between Democrats and Republicans for a bipartisan response to the crisis. Please note that at this time it has not been enacted into law but is expected to be by Friday, March 27th.
We are fielding a number of questions from our business owner clients, who have already been significantly impacted by COVID-19, regarding their options for access to short- and long-term liquidity to minimize business disruption. If this applies to you, please feel free to read ahead to the “business” section of this letter.