Short summary of CARES ACT

Short summary of CARES ACT in a letter sent by one of our partners to some of his clients:

Dear Clients and Friends:

I hope you are doing as well as possible.

Congress passed (with only one “no” vote in the House of Representatives) and the President signed (on Friday) the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.

Writing this on the following Sunday, I want to quickly pass-on a few summaries of the legislation, as you may want to take quick action in some cases.

In short, for businesses, there is the opportunity to obtain financial help (to offset qualified expenses), in the form of grants and forgivable loans, and while not a normal “tax issue” that would involve a C.P.A., I’m passing along this information. Other organizations have teams of reporters on Capitol Hill and staffs of writers, so rather than write much myself, or for my firm, I thought in this time of emergency to just pass along the best information I have, knowing some of you may want to contact your bank and payroll services immediately!

I realize you may have received many such summaries from Members of Congress, banks, brokers and insurance companies, (as I have) but I wanted to weigh-in for our deeply appreciated clients and friends.

You may have received emails from us in the prior week about the deferral of deadlines for 2019 tax returns due to the Internal Revenue Service, Franchise Tax Board (CA income tax), California Department of Tax and Fee Administration (CA sales tax)…so I won’t cover that again, here. Most other states have provided similar deferrals of due dates.

There are the following types of assistance in the CARES Act:

1) Individual Stimulus Payments

2) Small Business Loans

1. a) Including, Loan Forgiveness of Paycheck Protection Loans

3) Emergency Government Disaster Loans and Grants

4) Subsidies for Certain Loan Payments

5) Various payroll tax credits.

6) Enhanced Unemployment Compensation for employees.

7) Various tax provisions deferring or reducing taxes.

Tax issues summary article from Forbes:

https://www.forbes.com/sites/anthonynitti/2020/03/25/congress-reaches-agreement-on-a-coronavirus-relief-package-tax-aspects-of-the-cares-act/#3d3a762f5f99

Other issues article from Forbes:

https://www.forbes.com/sites/kellyphillipserb/2020/03/25/senate-passes-coronavirus-stimulus-bill-house-expected-to-follow-suit/#29cd2bb94475

“The SBA’s paycheck protection loan program is “really more of a loan that converts to a grant,” Bradley said. Small businesses with fewer than 500 employees qualify, as will some larger companies. The program is aimed at helping businesses maintain their payroll during the significant business disruption caused by the coronavirus crisis.

Here’s how the loan forgiveness works:

• Your company’s expenses for the eight-week period after the origination of the loan will be analyzed.
• Every dollar your company spent on payroll, utilities, rent, or interest on mortgage debt will be added together. That amount will be forgiven, up to the total amount your company borrowed through the program.

There is one caveat, however. The amount that is forgiven will be reduced for businesses that lay off employees during the first eight weeks following the loan. Companies that reduce wages of employees who make less than $100,000 per year by 25 percent or more will also have the forgivable amount reduced.

The good news is that businesses that have already let employees go before accepting the loan will not be subject to such penalties. And if those businesses rehire employees after accepting the loan, they’ll receive additional credit to cover their wages.”

There are more details (covered in the above articles) about these loans, BUT THE CLEAR INTENT IS TO PUSH MONEY INTO THE ECONOMY TO COVER VARIOUS BUSINESS EXPENSES. We have never seen anything like this before, with the exception of some programs in the 1930’s.

https://www.inc.com/graham-winfrey/sba-loan-forgiveness-how-to-convert-loans-to-grants.html

Here is an article on how Enhanced Unemployment Benefits will work: https://www.americanactionforum.org/insight/enhanced-unemployment-benefits-in-the-coronavirus-aid-relief-and-economic-security-cares-act/

WHAT DO I DO, RIGHT NOW?

Regarding the Individual Stimulus Payment, there is nothing to do. The IRS will be issuing those payments in a few weeks, (per a White House statement, this morning). There will be a “true-up” calculation in your 2020 tax return to make sure you obtain the maximum amount allowed taking into account the “advanced payment” to be received soon, and the ultimate true-up calculation.

Regarding Small business loans and grants, please talk to your banking relationship, or obtain one.  The White House said, this morning, that the banks will receive the process and paperwork requirements in about a week. The loans and grants are obtained via a bank, not via a tax return filing.

Regarding payroll tax credits and related refunds, please call your payroll tax service provider (A.D.P., Quickbooks Payroll, Paychex, Wells Fargo and many more) … they are all ramping up to help you with the filings.

Self-employed taxpayers, who don’t use a payroll service get various deferral and credits via tax return filings.

Regarding Enhance Unemployment benefits, employees need to contact the Employment Development Department (“EDD”) (in California) and start the process of filing a claim. I hear the EDD is overwhelmed at the moment but will hopefully (per a radio interview with an EDD administrator) work through the backlog.

Me and our firm, will, of course, assist with all tax return filings in due course.

Just noticing this from the California EDD:

California WARN

Governor Newsom issued Executive Order N-31-20 (PDF), which temporarily suspends the 60-day notice requirement in the California WARN Act for those employers that give written notice to employees and satisfy other conditions. The suspension was intended to permit employers to act quickly in order to mitigate or prevent the spread of coronavirus. The Executive Order does not suspend the California WARN Act in its entirety, nor does it suspend the law for all covered employers. The Executive Order only suspends the California WARN Act’s 60-day notice requirement for those employers that satisfy the Order’s specific conditions. Employers should continue to file a WARN per the legislation requirements regardless if the 60-day notice timeframe is not met. For more information, visit the COVID-19: WARN FAQs.

I hope this information is helpful.

Warm (and socially distant) regards,

We hope you found this article about a short summary of CARES ACT helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.  Unfortunately, we no longer give advice to other tax professionals gratis.

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Considerately yours,

GROCO, GROCO Tax, GROCO Technology, GROCO Advisory Services, GROCO Consulting Services, GROCO Relationship Services, GROCO Consulting/Advisory Services, GROCO Family Office Wealth, and GROCO Family Office Services.