SPECIAL REPORT: CARES Act and the Paycheck Protection Program
You may have heard about the “forgivable” loan program that has been proposed in the CARES Act, now under consideration by the U.S. House of Representatives. The program offers businesses a way to keep their employees on payroll and keep their businesses alive during the COVID-19 crisis. The law has not yet been passed, but we are sharing some of the points as we currently understand them, so you can make an informed decision when the time comes.
Good News:
Loans should be approved within 1-3 days, but they are aiming for 36 hours.
You will apply for the money at a local bank. The bank provides the money and the government guarantees the loan.
Funds that are used to cover payroll costs including independent contractors, and overhead expenses such as rent, employee health insurance, utilities, and interest on debt (not principal) are interest free. Funds used for other purposes will be charged 4% interest.
Loans may cover expenses retroactively to March 1, 2020. This will allow employers to immediately re-hire laid off workers and continue their previous benefits. It may also allow employers to pay tipped employees an equivalent amount of the tips the workers previously earned.
Loans are eligible to be forgiven.
Bad News:
To qualify for one of these loans, your bank will probably ask for detailed financial records. If your records are shaky, we can help you get them ready for presentation. Bookkeeping services are legitimate overhead expenses that are covered by the loan program.
Forgiven loan amounts are included in taxable income. That means you will pay tax on any forgiven loan principal.
To qualify for loan forgiveness, scrupulous records must be kept, including detailed payroll records and cancelled checks or receipts for rent and utility payments. If record-keeping is not your strong point, ask us about our complete outsourced bookkeeping and payroll services.
We will be updating this rough overview next week when more details become available.