As of March 26, the Coronavirus Aid, Relief and Economic Security Act (H.R. 748) passed in the Senate, which is the third package established in response to the Coronavirus health crisis. This measure will continue onward to the House and finally reach the desk of the President. While the governmental process is not complete, many of the provisions are beneficial to practice owners and their teams are highlighted here:
A one-time federal tax rebate will be available to eligible dentists and their employees. The amount would be $1200 for induvial and $2400 for joint filers. The bill also issues an additional rebate of $500 per child. Filers with an income of $75,000 for individual and $150,000 joint will see reduced amounts. The current reduction is $5 for every $100 of taxable income above the threshold.
Unemployment Compensation Benefits and Social Security:
Employees utilizing unemployment benefits could see an increase of up $600 per week. This aid will be federally supplemented and will be funded for the next four months. Employers and self-employed individuals can defer their share of social security tax until December 31, 2020. These amounts would be paid in half increments over two years, with the first payment being December 31, 2021 and the second December 31, 2022.
401k Withdrawals, and Student Loans:
A withdrawal amount of retirement funds up to $100,000 can be executed without paying a penalty. This applies if the dentist, their spouse or dependent is diagnosed with COVID-19 or has experienced financial hardship. Financial hardship has been defined as a reduction in hours or closure, lay-off, and quarantine.
Borrowers of federal student loans are not required to pay through September 30, 2020. During this period loans will not accumulate interest. Individuals with only federal student loans are encouraged to contact their lender to pursue this option. Private loan stoppage is not covered under this legislation. Also, associates receiving student loan assistance will not have to pay taxes on any amount received up to $5,250, from the time the bill becomes law and January 1, 2021.
Small Business Loans :
There is currently $ 349 billion allocated in loans to aide small businesses, sole-proprietors, and those who are self-employed. All loans will be distributed by FDIC-insured banks and can be available the same day in some instances once the application is submitted. As of press conferences on March 25, 2020 there are hopes to open the application process in early April 2020.
The loan amount can reach up to $10 million or 2.5 times the average total of monthly payments made for payroll the loan prior to applying for the loan. “payroll” is deemed salary, wages, commissions, vacation, parental, family, medical or sick leave or similar compensation. Others that are identified as payroll are allowances for dismissals and separation. Payments required for health care benefits and retirement are also included. Compensation of those with an annual salary greater than $100,00 is not included in payroll costs. Other uses for the loan are mortgage interest payments, rent, utilities, and interest on debt incurred prior to Feb 15, 2020.
Loan applicants are eligible for indebtedness forgiveness in the amount equal to the sum of the following costs incurred and payments made from the date it received the loan for a subsequent eight-week period. Meaning, the amount of potential loan forgiveness is limited to the type of payment made (from the list below) and the time that it was made (eight weeks from receipt of the loan). Items taken into account for this measure would be payroll costs, payment of interest on mortgage, rent, and utilities.
The loan forgiveness amount can be reduced with two factors, employee retention, and employee compensation. Employee retention is compared to the previous year as the example below:
The Company has 20 employees during the covered period when it is receiving the loan. Last year in 2019, the Company had 25 employees. 20/25= .8. 1 – .8 = .2 which is a 20% reduction. To determine how many employees a company had during the relevant period, the average number of full-time equivalent employees shall be determined by calculating the average number of employees for each pay period falling within a month.
Employee compensation is considered for employees who take a pay cut greater than 25% and said pay is not reinstated to the pre-reduced amount by June 30, 2020.
It is imperative that applicants include documents verifying full-time pay rates for the periods described in the loan forgiveness section, and declare the funds are to be used for employee retention. In order to ensure a smooth start when the process opens applicants should begin preparing these documents:
- Payroll tax filings reported to the Internal Revenue Service;
- State income, payroll, and unemployment insurance filings;
- Financial statements verifying payment on debt obligations incurred before the covered period;
- Documentation verifying covered mortgage obligations, lease obligations, and utility obligations; and
- Any other documentation the Administrator determines necessary.