COVID-19: Corporate, Business and Banking Digest
In these unprecedented times, businesses, governments and individuals are struggling and the legal landscape is changing by the hour. We know you are worried about the short and long-term effects of this emergency. McManimon, Scotland & Baumann (MS&B) stands ready to support you in any way we can. Our attorneys are leaders in corporate law, debtor/creditor relations, bankruptcy, public finance and local government law, to name a few. MS&B is here to walk you through the federal and state relief programs right for your business. We want to assist you in addressing these unique legal challenges and get you back to work.
In response to the financial impact of the novel COVID-19, both the Federal government and the State of New Jersey have implemented various forms of relief for businesses of all sizes. Email John J. Oberdorf, Jr., Jeffrey A. Sherry or Parampreet Singh for more information. Below are details pertaining to some of those programs.
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”)
The CARES Act provides up to $2.2 trillion in relief to eligible American businesses and individuals. Specifically, the CARES Act provides up to $504 billion in large business and local government loans, up to $349 billion in small business assistance, up to $280 billion in business tax cuts, and up to $260 billion in expanded unemployment benefits, amongst other aid.
The Paycheck Protection Program
The CARES Act provides up to $349 billion in loans to eligible small businesses impacted by COVID-19 to be used for payroll costs, rent, utilities, and interest on pre-existing debts. Eligible small businesses may qualify to borrow up to 250% of their payroll costs.
Pursuant to Section 1106 of the CARES Act, a portion of the loan amount granted under the Paycheck Protection Program may be forgiven if the business meets certain requirements and the forgiven portion of the loan will not be taxable income to the business.
Employee Retention Credit
Under the CARES Act, certain businesses may qualify for a refundable payroll tax credit equal to 50% of certain compensation paid from March 13, 2020 to December 31, 2020 if business operations were fully or partially suspended due to a COVID-19-related shutdown order or the gross receipts of the business declined by more than 50% when compared to the same quarter in 2019. The payroll tax credit is capped at $5,000 per employee.
Employer Payroll Tax Deferral
Section 2302 of the CARES Act permits employers to defer payment of employment taxes that would otherwise be due from March 27, 2020 through December 31, 2020, without penalty or interest. Half of the deferred amount is due by December 31, 2021, and the other half is due by December 31, 2022. Businesses whose Paycheck Protection Program loan is forgiven under Section 1106 are ineligible for payroll tax deferral.
Net Operating Loss (“NOL”) Carrybacks
The CARES Act permits NOLs from 2018, 2019, and 2020 tax years to be carried back to the earliest of the previous five years and suspends the 80% of taxable income limitation through the 2020 tax year for qualified businesses. This provision of the CARES Act may result in an immediate refund of taxes paid in prior years for specific entities. Since the carrybacks are applied to the earliest year, application of the carryback rules may result in recapture of taxes paid at 35% as opposed to the existing corporation tax rate of 21%.
Funding for Large Businesses
The CARES Act also provides billions of dollars in funding to mid-size and large businesses, including non-profits, impacted by COVID-19. These businesses are afforded payment deferrals and require certain minimum employment levels and restrictions on salary increases for executives.
New Jersey Programs
The New Jersey Economic Development Authority (“EDA”) has approved new programs designed to support businesses and workers facing economic hardships due to COVID-19. The EDA has indicated there may be additional rounds of funding in the future.
Small Business Emergency Assistance Grant Program
This is a $5 million program that will provide grants up to $5,000 to small businesses in retail, arts, entertainment, recreation, accommodation, and food services to help stabilize their operations and reduce the need for layoffs or furloughs. The funding is targeted for unrestricted payroll and working capital support.
Small Business Emergency Assistance Loan Program
This is a $10 million program that will provide working capital loans up to $100,000 to small business in order to assist them with operating expenses and ensure continuity of operation during the outbreak. These loans will have 10-year terms with maximum interest capped at 3%. Businesses may also qualify for deferred payments up to one year under this program.
In addition to these programs, there are various other programs for which businesses impacted by COVID-19 may qualify. Some of the rules relating to qualification are confusing.
MS&B is well-prepared to meet these uncertainties and to continue to provide you with the same level of assistance and guidance through these challenging and changing times. We have fully remote capability and all attorneys and staff remain available by email, telephone, and fax. Please call us for all your business needs.