Helping You Navigate the CARES Act

Featuring

Michelle HubertRegional Vice President

Farm Bureau Financial Services

Armstrong RobinsonVP of Legislative Affairs

AALU/GAMA

Bonnie GodsmanPresident

AALU/GAMA

Joe GergelyAgency Vice President

COUNTRY Financial

Helping You Navigate the CARES Act

C19 – Relief Resources for Small Businesses

• “Phase 3 Bill” = $ 2.2 Trillion Bridge Loan to the American Economy• Creates multiple avenues for relief to businesses, individuals, and families• Details and updates from the government daily – stay tuned to the Covid-19 Action Center

Relief for Individuals & Families

1. Recovery Rebates: $1,200 ($2,400/couple) for AGI under $99,0002. Unemployment Insurance: $600/week for up to 39 weeks; applies to

independent contractors/sole proprietors/gig workers 3. Retirement Plans: Waives 10% withdrawal penalty for plan loans, 3-year

payback period ***4. Student Loan and Mortgage Relief: Extended repayment deadlines5. Charitable Giving: Incentives for cash gifts related to COVID-19 6. Paid Sick Leave: 80 hours of paid sick leave, up to 12 weeks of paid FMLA leave7. Delayed IRS Deadlines8. Independent Contractor Eligibility for SBA programs

OVERVIEW: Relief for Employers

1. Delay Employer Payroll Taxes2. SBA Loans for Small Business3. Employee Retention Credit4. Short-term comp program5. NOL6. Sick Leave Requirements and Resources

FOCUS: Small Business Administration Resources

• Small Business Loan Relief. SBA will pay all principal, interest, and fees on all pre-existing SBA 7(a) loan products for six months to provide economic relief. It excludes PPP loans.

• Paycheck Protection Program (PPP) – up to $10 million• Economic Injury Disaster Loans (EIDL) – up to $2 million

• Note: A small business may receive both PPP and EIDL loans, however, the funds must be used for different purposes.

SBA: Eligibility

• Business or non-profit with 500 or fewer employees (affiliation rules apply)• Sole proprietor, LLC, C-Corp, S-Corp, independent contractors, coops, ESOPs• Certain business types (e.g., legal gambling) are ineligible

• Entity must be located in the U.S. || Only U.S.-based employees count for calculations

• If more than 500 employees – look to the NAICS Code definitions of small businesses (link in AALU/GAMA materials in the action center)

• If SBA does not work – then look to the Treasury Exchange Stabilization Fund

SBA: Payroll Protection Plan

• The program is designed for small businesses to preserve employees’ salaries.

• Created a new $350 billion program in SEVEN days.

• Trying to cram a tidal wave through a pinhole! (last year the SBA 7(a) program lent out $23 billion)

• Some details of program still unclear/uncertain

• Borrower Guidance v. Lender Guidance

• Apply for the loan -> Spend on Eligible Expenses -> Apply for forgiveness

• Things will change – important to stay connected to the Action Center

SBA: Payroll Protection Plan

• Up to $10 million; 6/12 month deferral of first payment; payable over 2 years; 1% || 8 weeks forgivable – income tax free

• Loans could equal up to 250% of average monthly total payroll costs incurred during the year prior.

• Payroll costs exclude any cash compensation in excess of $100,000 for any individual

• Non-cash compensation is not subject to the cash compensation cap. Non-cash comp includes: payments for heath benefits, contributions to qualified plans, state taxes on employee compensation.

• Can include owner comp up to the limits.

• Your ICs do not count for your business calculation || they can make their own application

• A business can bring back previously furloughed employees by 6/30/20 to avoid a reduction in forgiveness amount

• The PPP loan can function much like a grant given that it can be fully or partially forgivable. (8 weeks). No federal income tax is owed on that forgiveness.

• Apply –

• First – contact your bank and ask about their 7(a) / PPP program

• Second - SBA.gov has lender matching tools available

PPP: Two Distinct Calculations• Maximum Loan Amount = Average Monthly Payroll Expenses x 2.5 • A Look Back Rule

• Payroll costs exclude any cash compensation in excess of $100,000 for any individual• Payroll costs include: cash compensation (e.g., salary, commissions, PTO); and• Non-cash compensation (e.g., group health benefits including insurance premiums, retirement benefits,

state or local tax on comp). • Can include owner comp up to the limits.• Your ICs do not count for your business calculation || they can make their own application• A business can bring back previously furloughed employees by 6/30/20

PPP: Two Distinct Calculations• Maximum Forgiveness = 8 weeks of actually-paid permissible expenses • A Look Forward Rule

• 75% or more must be for payroll• 8-week period begins on date the loan is made (i.e., funds are disbursed).• Eligible costs include: (all with respect to services beginning, or obligations incurred,

before February 15, 2020)• payroll costs; • any interest on any covered mortgage obligation; • any payment on any covered rent (or lease); and • any covered utility obligations

• You can only apply for loan forgiveness after the loan is originated.

SBA: PPP Example 1Business owner who is a sole proprietor, self-employed, or independent contractor• No employees• Owner’s non-cash benefits equal $20,000 for period one-year prior• Net income of $85,000 for period one-year prior

• Covered rent, covered leased equipment, and covered utilities total $600 per week

Answer: “Payroll costs” = only that portion of the business owner’s cash income as is below the $100,000 cap.

Max loan amount = ($105,000 / 12) x 2.5 = $21,875Max forgiveness = (($105,000 / 52) x 8) + ($600 x 8) = $20,953.85 Remaining Loan Amount = $921.15

SBA: PPP Example 2Business owner who is a sole proprietor, self-employed, or independent contractor• One employee making a salary of $40,000, with non-cash benefits of $5,000.• Owner’s non-cash benefits equal $20,000 for period one-year prior• Net income of $85,000 for period one-year prior• Covered rent, covered leased equipment, and covered utilities total $600 per week

Answer: “Payroll costs” = only that portion of the business owner’s cash income as is below the $100,000 cap.

Max loan amount = ($150,000 / 12) x 2.5 = $31,250Max forgiveness = (($150,000 / 52) x 8) + ($600 x 8) = $27,876.92Remaining Loan Amount = $3,373.08

NOTE: If the “employee” were an independent contractor – then none of that compensation would be included in the owner’s payroll costs.

SBA: PPP Example 3S Corporation – no employees• No employees• Owners each own 50 percent of the entity• Reasonable compensation paid to two owners of the S corporation is $100,000, each

• $50,000 of residual profit in S corporation, allocated $25,000 to each owner• Covered rent, covered leased equipment, and covered utilities total $1,000 per week

Answer: for each separate owner’s PPP, “payroll costs” = so much of the owner’s allocable share of the compensation paid by the entity, plus that owner’s own share of business profit, that is below the $100,000 cap. NOTE: there remain uncertainties as to how to treat passthrough businesses for purposes of the PPP, including S corporations (e.g., some have taken the view that the PPP loan is at the passthrough entity level).

Max loan amount = ($100,000 / 12) x 2.5 = $20,833.33Max forgiveness = (($100,000 / 52) x 8) + (($1,000 x 8) / 2) = $19,384.62

SBA: PPP Example 4S Corporation – w/ employees & ICs• Two employees making $40,000 and $60,000• Two independent contractors making $75,000, each• One owner

• Reasonable compensation paid to the owner of the S corporation is $100,000, each• $30,000 of residual profit in S corporation• Covered rent, covered leased equipment, and covered utilities total $1,000 per week

Max loan amount = ($230,000 / 12) x 2.5 = $47,916.67Max forgiveness = ($230,000 / 52) x 8) + ($1,000 x 8) = $43,384.62

Small Business Loans: Emergency

• The loans are designed to provide economic relief due to an emergency or catastrophe. They can be used to pay fixed debts, payroll, accounts payable and/or other bills that can’t be paid due to the epidemic’s economic impact.

• Up to 2 million; payable over 30 years; 3.75% or 2.75% for expenses that could have been met had the disaster not occurred.

• Emergency EIDL grant is an advance of $10,000 on loan application (within 3 days), and it does not have to be repaid – even if the loan is not approved

• Eligibility: Small business with less than 500 employees or defined by NAICS Industry Code based on revenue and/or employees; Non-profits [including (c)(3) and (c)(6)]

• Apply – SBA.gov

Helping You Navigate the CARES Act

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