Implications of the CARES Act for Professional Services Firms
The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law on March 27, 2020, and includes $330 billion in federal funding to help offset the effects of the pandemic on American commerce.
The package offers sweeping provisions, including tax provisions for companies that provide professional services such as law firms, banking and financial institutions, architectural and engineering firms, insurance companies, and physician practices.
Under the new law, employers may contribute up to $2,500 annually toward an employee’s student loans before January 1, 2021. Businesses can also receive a refundable payroll tax credit for 50 percent of wages paid by employees during the pandemic, provided their operations were fully or partially suspended due to the pandemic, and gross receipts were declined by more than 50 percent when compared to the same quarter in 2019. This credit is based on qualified wages paid to employees, with parameters set based on the number of a business’s full-time employees, and applies to the first $10,000 of compensation (including health benefits) paid to an eligible employee from March 13, 2020, through Dec. 31, 2020.
Employers and self-employed individuals may defer payment of the employer share of the Social Security tax over the following two years, with half of the amount required to be paid by Dec. 31, 2021, and the other half by Dec. 31, 2022. Businesses are also allowed to temporarily increase the amount of interest expense they deduct on their tax returns, for 2019 and 2020, effectively increasing their liquidity with a reduced cost of capital.
Small business owners will obtain relief under the Keeping American Workers Paid and Employed Act, which provides $349 billion in loan guarantees to small businesses and other entities with less than 500 employees. Eligible businesses can borrow up to $10 million with up to a ten-year term at an interest rate of 4 percent or less. The loan can be used to cover payroll costs for employees who earn less than $100,000, as well as group health insurance premiums and other related costs. Small business debtors will also benefit from reducing the cost of bankruptcy and providing greater flexibility in restructuring options.
The Act also includes a 2020 Recovery Rebate for Individuals, which will provide $1,200 per individual ($2,400 for married taxpayers filing jointly) with an additional $500 per child. Tax filing and payment deadlines have been extended to July 15, 2020, and those seeking to access retirement funds will benefit from an increased loan allowance, an ability to withdraw funds penalty free and re-deposit within three years. Taxpayers are also eligible to deduct $300 in charitable contributions, even if they don’t itemize.
The CARES Act is designed to ensure the viability of the American economy as it rebounds from the pandemic. Businesses can benefit from advice on how to take advantage of and maximize the support offered by its various provisions. For additional information about how the CARES Act impacts your business, please contact Scott Duda.