Business and Tax Relief in Response to COVID-19

As COVID-19 imposes challenges on our communities, Weintraub is tracking developments to help you deal with the pandemic’s business and legal implications.

I.                 SBA Economic Injury Disaster Loans

A.                 Overview

The U.S. Small Business Administration (SBA) is providing low-interest working capital loans of up to $2 million to small businesses and nonprofits affected by COVID-19 in presidential and SBA-declared disaster areas.  Borrowers can use the loans to cover accounts payable, debts, payroll and other expenses where COVID-19 has affected the borrower’s ability to pay. These loans have an interest rate of 3.75% for small businesses and 2.75% for nonprofits. Loan repayment terms vary by applicant, up to a maximum of 30 years.  SBA press release.[1]

B.                 Eligibility and How to Apply

State governors must request access to the Economic Injury Disaster Loan program for businesses located in their states. As of March 20, businesses in the following states can apply: Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Louisiana, Maine, Maryland, Massachusetts, Michigan, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Virginia, Washington and West Virginia.  Apply online.[2]  See California-specific SBA fact sheet here.[3]

II.                 Federal Reserve Programs (forthcoming)

A.                Main Street Business Lending Program

The Federal Reserve expects to announce the establishment of a Main Street Business Lending Program to support lending to eligible small and medium-sized businesses, complementing efforts by the SBA.  See Federal Reserve press release.[4]

B.                 New Facilities

The Federal Reserve is establishing (i) two facilities to support credit to large employers – (A) the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and (B) the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds; and (ii) a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable the issuance of asset-backed securities (ABS) backed by student loans, auto loans, credit card loans, loans guaranteed by the SBA, and certain other assets.  See Federal Reserve press release referenced above.

III.             Federal Tax Relief

A.                 Reimbursement for Wages Paid to Employees on Leave

1.                  Background

On March 18, 2020, President Trump signed the Families First Coronavirus Response Act (Act) into law.  See full text here.[5]  The Act provides paid family and medical leave and sick leave to employees of employers with fewer than 500 employees, and provides tax credits to employers to reimburse them for providing such paid leave.  The Act imposes leave requirements on employers via two separate acts within the act: (1) the Emergency Paid Sick Leave Act (EPSLA), and (2) the Emergency Family and Medical Leave Expansion Act (EFMLEA).

2.                  Tax Credits to Reimburse Employers

The Act provides tax credits to employers to cover wages paid to employees while they are taking time off under the EPSLA and the EMFLEA. The credits have three components:

(i)  The EPSLA credit for each employee is equal to the lesser of the amount of the employee’s leave pay or either (1) $511 per day while the employee is receiving paid sick leave to care for themselves, or (2) $200 per day if the sick leave is to care for a family member or child whose school is closed (i.e., the same amounts at which the employer’s obligations to pay for leave are capped under the EPSLA).  An additional limit applies to the number of days taken into account for purposes of the caps described in the preceding sentence – the excess of 10 days over the aggregate number of days taken into account for all preceding calendar quarters.  The EMFLEA credit for each employee is the amount of the employee’s leave pay limited to $200 per day with a maximum of $10,000 (i.e., the same amounts at which the employer’s obligations to pay for leave are capped under the EFMLEA).

(ii)  The amount of the EPSLA and EMFLEA credits are increased by the portion of the employer’s “qualified health plan expenses” allocable to qualified sick leave wages or qualified family and medical leave wages. Qualified health plan expenses means amounts paid or incurred by the employer to provide and maintain a group health plan (defined in IRC Section 5000(b)(1)), but only to the extent that such amounts are excluded from the gross income of employees by reason of IRC Section 106(a).

(iii)  The credits allowed to employers for wages paid under the EPSLA and EMFLEA are increased by the amount of the tax imposed by Code Sec. 3111(b) (1.45% hospital insurance portion of FICA) on qualified sick leave wages, or qualified family leave wages, for which credit is allowed under Section 7001 or 7003 of the Act.

The credits are refundable to the extent they exceed the employer’s payroll tax.  Employers do not receive the credit if they are also receiving the credit for paid family and medical leave provided for in IRC Section 45S.  See IRS news release here.[6]

B.                 Tax Filing/Payment Extensions

IRS tax filings and payments now are not due until July 15, 2020.  See IRS guidance here.[7]  This applies to any taxpayer that is an individual, trust, estate, partnership, association, company, or corporation.  This relief applies to federal income tax payments (including payments of tax on self-employment income) and federal income tax returns that were originally due on April 15, 2020, in respect of the taxpayer’s 2019 taxable year.  This relief also applies to federal estimated income tax payments (including payments of tax on self-employment income) that were originally due on April 15, 2020 for the taxpayer’s 2020 taxable year.

C.                 High-Deductible Health Plans Can Cover Coronavirus Costs

Health plans that otherwise satisfy requirements to be a high deductible health plan (HDHP) under the Internal Revenue Code will not fail to be an HDHP merely because the health plan provides health benefits associated with testing for and treatment of COVID-19 without a deductible, or with a deductible below the minimum deductible (self only or family) for an HDHP. See IRS notice here.[8]

IV.              California Tax Relief

A.                 Tax Filing/Payment Extensions

California tax filings and payments now are not due until July 15, 2020, matching the new IRS deadline.  See California Franchise Tax Board information here.[9]  The new July 15 due date applies to individuals as well as entities, and applies to estimated annual fee payments for 2020 due from entities, and estimated fee payments due from individuals (for both the first quarter and the second quarter).  Regarding estimated tax payments due from C corporations, S corporations, and exempt organizations, if the estimated tax payment was originally due on or between March 15, 2020 and April 15, 2020, the new due date is July 15, 2020.

California Governor Gavin Newsom issued an executive order on March 12 suspending for 60 days after such date the filing requirements applicable to the taxes and fees administered by the Department of Tax and Fee Administration (CDTFA).  This applies to individuals and businesses unable to file a tax return or make a payment on time as a result of a state or local public health official’s mandatory or recommended social distancing related to COVID-19. CDTFA administers a number of taxes, including sales and use taxes, fuel taxes, cigarette and cannabis taxes, and insurer taxes.  See executive order here.[10]

V.                 California Employment Development Department (EDD)

A.                 Work Sharing Program

Employers seeking to avoid layoffs can apply for the Work Sharing Program. This program aims to enable employers to retain employees by reducing hours and wages that can be partially offset with unemployment insurance benefits.  See Work Sharing Program web site here.[11]

B.                 Potential Closure or Layoffs

Employers planning a closure or layoffs as a result of COVID-19 can seek assistance from the EDD’s Rapid Response program, under which Rapid Response teams meet with employers to discuss needs, avoid layoffs, and provide services to workers facing job losses. See fact sheet here.[12]

C.                 Tax Assistance

Employers experiencing a hardship as a result of COVID-19 may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit state payroll taxes without penalty or interest. For questions, employers may call the EDD Taxpayer Assistance Center at (888) 745-3886.

VI.              Other California Resources.  The California Governor’s Office of Business and Economic Development has compiled information for employers, employees and all Californians as it relates to COVID-19.  See webpage here.[13]

VII.           Local Government

A.                 San Francisco

The City of San Francisco has established the San Francisco COVID-19 Small Business Resiliency Fund.  Businesses with 1 to 5 employees can apply for up to $10,000 in emergency funding to help cover rent and employee salaries.  To be eligible, the business must show that it lost at least 25% of revenue, that it has less than $2.5 million in gross receipts, and that it is properly licensed to operate in San Francisco.  See application materials here.[14]  San Francisco has also imposed a moratorium on evictions for small and medium-sized businesses (less than $25 million in annual gross receipts). It is effective for 30 days starting March 17, and the mayor can extend it for an additional 30 days.  See press release here.[15]

B.                 Los Angeles

The City of Los Angeles has established a Small Business Emergency Microloan Program.  Businesses and microenterprises in Los Angeles that are responsible for providing low-income jobs can get an emergency microloan of $5,000 to $20,000. The loans have repayment terms of 6 months to 5 years, and carry an interest rate of either (i) 0% for a term of 6 months to 1 year (Option 1) or (ii) 3% to 5% for a term of up to 5 years (Option 2).  To be eligible, the business must satisfy requirements including having principal business owners with “reasonable and responsible” credit histories, committing to use the loan for working capital only, and having its primary business operation located within the City of Los Angeles. If a business owner owns 20% or more of the business, such owner must guarantee the loan.  Apply online.[16]  Los Angeles has also imposed a moratorium on evictions of businesses impacted by COVID-19 through March 31.  See press release here.[17]

C.                 San Diego

San Diego Mayor Kevin L. Faulconer announced on March 18 an economic relief package worth approximately $4 million.  It aims to reduce fees, provide certainty, and offer support to local employers affected by COVID-19.

The new programs and measures that are part of the package include (i) a new San Diego Small Business Relief Fund (for microloans to small businesses, funded by the City of San Diego and other partners that the city will seek to increase the fund); (ii) Tax Certificate Deferral Program (to ensure business owners are not penalized for late renewal submissions for up to 120 days, and provide for a one-year forgiveness period for Business Tax Certificate penalties and surcharges when reestablishing delinquent accounts); (iii) Commercial Utility Deferral (to help business owners by suspending water billing fees, removing penalties for late payments, and ensuring no commercial account shut-offs); (iv) extension of all building permits (for 180 days, with further extensions available upon review).  See new release here.[18]

D.                Sacramento

The City of Sacramento has a Small Business Economic Emergency Relief Loan Program.  However, as of March 21, 2020, the city is no longer accepting new applications.  If additional funding becomes available, the city will reopen the portal for submitting applications.  See information regarding such loan program and other Sacramento area resources here.[19]