It is not news that the world is seeing a period of economic decline unlike any it has ever seen. We are all experiencing it. In response to the stagnant economy brought on by the COVID-19 pandemic, the United States Federal Government has in the past month passed several relief acts to help businesses keep up operations as best they can. The following is a summary of recent provisions passed.
Qualified Disaster Relief Payments: The recent declaration of a federal national emergency stemming from the COVID-19 pandemic gives employers the ability to reimburse employees for relief-related expenses, tax-free. This provision draws from Section 139 of the U.S. IRS code. The payments would fall under “qualified disaster relief payments” and are defined as any amount paid to or for the benefit of an individual to reimburse or pay reasonable and necessary personal, family, living or funeral expenses incurred as a result of a qualified disaster (providing that the expenses are not covered by insurance).
The IRS has not issued specific guidance on what expenses qualify during the COVID-19 outbreak. But to give you an idea of what would be covered, the following instances are examples. These include expenses incurred from the unique circumstances brought on by accommodating for the COVID-19 pandemic: medical care, working from home, dependent care, increased costs from transportation, and cleaning products used for virus-spread prevention.
Before your company begins relief disbursements, it should first establish a policy for the process. The policy would outline the application process, what qualifies as a relief expense, payment limits and the application process.
Small Business Loans and Grants
The $2.2 trillion relief package, titled the CARES Act, was passed on March 27 and offers support for small businesses via emergency grants and a forgivable loan program, amongst numerous other provisions. The generous money lending opportunity is designed for businesses with 500 or fewer employees to keep operations afloat as they ride out this period of minimal economic activity. There are also rule changes for expenses and deductions meant to make it easier to keep employees on the payroll.
The details: The act provides $10 billion for grants of up to $10,000 to go towards emergency funds and cover operating costs. As to forgivable loans, there is $350 billion allocated for the Small Business Administration (SBA) to provide loans of up to $10 million per business. The Paycheck Protection Program deems that any portion of that loan used to maintain payroll, keep workers on the books or pay for rent, mortgage and existing debt could be forgiven, provided workers stay employed through the end of June. Basically, in order for the loan to be forgiven, the business must maintain about the same payroll level as it had before the pandemic.
In regards to existing loans through the SBA, the legislation provides $17 billion to cover six months of payments.
Emergency Unemployment Insurance
Anticipating the enormous rise of unemployed workers, the U.S. Federal Government passed the Emergency Unemployment Insurance Stabilization and Access Act on March 17. Effective April 3, this legislation infuses $1 billion towards unemployment insurance claims which are paid out by the states. The country is currently managing record-breaking unemployment, and this act will help states fulfill its claims obligations. The payments will come in two sets, with $500 million to be initially distributed, and the second half distributed based on qualifications such as rising unemployment rates per state.
Employers are obligated to notify laid off workers of the availability of the unemployment insurance (UI) benefits. When developing the notice, be sure to include any provisions determined by the state that are related to the COVID-19 pandemic.
Emergency Paid Sick Leave Act
The same package that passed the UI act also included the Emergency Paid Sick Leave Act. In a time where it is crucial for infected individuals to keep away from the populace, this act encourages employers to let their employees take leave without loss of income. The act requires private small businesses to provide an employee 10 leave days for quarantine, or when the individual is a caretaker of a family member who is sick, or to care for children who are out of school.
The bill caps per employee costs at $511 per day and $5,110 in the aggregate for illness and quarantine leave, and $200 per day and $2,000 per employee in aggregate for caregiver leave. Employers can recoup these costs through payroll tax credits and any amount in the excess of that through a general tax refund.
Additional Support – More to Come
While the amount of relief money that has been allocated by the U.S. Federal Government is staggering, it may not be enough to fully support the hardships incurred on businesses and citizens of the United States. As the impact from the pandemic ripples over the next few months, the government is geared to disburse relief in needed sectors. Stay tuned.
In addition to the multiple avenues of financial support from the U.S. Federal Government, it is prudent to also look into relief efforts allocated by state and city governments. Separately these smaller governments are using funds to provide local support to help keep their localities afloat, including temporary eviction moratoriums on commercial properties.
There is no question that we are navigating through an unprecedented time, and because of that each day brings new developments. As your business works to operate during this uncharted economic downturn, also take this time to strategize how to work towards recovery. One step is to take advantage of these financial relief opportunities.
Eliza Selig is the HFTP director of communications. She can be reached at email@example.com.