As of March 26, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) (H.R. 748) passed in the Senate. This 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. Many of the provisions are beneficial to practice owners even though the governmental process remains incomplete. Some beneficial provisions include:
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. The aid is federally supplemented, funded for the next four months. Employers and self-employed individuals can defer their share of social security tax until December 31, 2020. The first payment, of half the amount due, would be December 31, 2021. The second payment of the outstanding balance would be December 31, 2022.
401k Withdrawals, and Student Loans:
You can withdraw up to $100,000 from a retirement account without paying a penalty. You can withdraw funds if the dentist, their spouse or dependent contracts COVID-19 or experiences financial hardship. A reduction in hours or closure, lay-off, and quartine define financial hardship.
Payments are not required on Federal Student Loans until September 30, 2020. During this period loans will not accumulate interest. Contact your lender to pursue this option if you have a Federal Student Loan. This legislation does not cover payment stoppage on Private loans. 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 months prior to applying for the loan. Salary, wages, commissions, vacation, parental, family, medical or sick leave or similar compensation defines “payroll”. Allowances for dismissals and separation also identify as “payroll”. It also includes payments required for health care benefits and retirement. Payroll cost does not include compensation for those with an annual salary greater than $100,000. Mortgage interest payments, rent, utilities, and interest on debt incurred prior to Feb 15, 2020 are other uses for the loan.
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. The type of payment made limits the amount of potential loan forgiveness. The time (eight weeks from receipt of the loan) also limits potential forgiveness. Items taken into account for this measure would be payroll costs, payment of interest on mortgage, rent, and utilities.
Employee retention and employee compensation reduce the loan forgiveness amount. The example below shows an employee retention comparison:
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.
Employees who take a pay cut greater than 25% and are not reinstated to the pre-reduced amount by June 30, 2020 are eligible for employee compensation.
It is imperative applicants include documents verifying full-time pay rates for periods described in the loan forgiveness section. They must use the funds are 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.