19 Answers to Your Top Questions About Federal Relief Programs
Tax advisor Mitch Reitman addresses questions on federal relief programs asked by security dealers and integrators as they confront the coronavirus crisis.
As more companies seed relief under the various federal programs to help them contend with the coronavirus crisis they have many questions. I have been involved in 15 webinars to date regarding various provisions and relief measures. Following are the top questions I have received and addressed.
1. Can you use $10,000 Economic Injury Disaster Loans (EIDL) to pay for vender equipment, central station or monitoring related bills?
Yes, but EIDL loans can only be used to alleviate economic injury as a result of the COVID-19 crisis. You can use the funds to pay fixed debts, payroll, accounts payable and other bills that you would have typically been able to pay had your business not been impacted by COVID-19.
2. So if we laid people off in March then we will not be forgiven if we bring our people back right away? I have 15 people off that I can bring back instantly if this is comes through.
All or part of the loan you receive under Payroll Protection Program (PPP) loans could be forgiven if you keep all employees on payroll—or rehire them by June 30, 2020. Payroll costs must be 75% or more of your approved loan amount. Only 25% of the amount forgiven can be used on non-payroll expenses. The forgiveness won’t happen until the end of the eight-week period of employment following receipt of your loan.
3. For normally full time, salary employees, now working part time due to daycare facility closing, if I pay them normal salary, can I track the time off (half days) and get a credit for it?
This question refers to the allowable tax credits under the CARE Act. If you are required to provide the time off by the provisions of the Act, you can be reimbursed for up to two thirds of an employee that is forced to care for a child due to the shutdown of a school or day care. If this is the case, and you are required to pay the employee two-thirds of their salary, then you are eligible to be reimbursed through the tax credits.
4. Can you address the documentation required for any of these programs?
The SBA administers EIDL loans and has promulgated specific documentation. For a list of this documentation go to the SBA Disaster Loan Assistance website. PPP loans are administered by banks, and must comply with SBA Regulations. The banks will determine their documentation, underwriting, and compliance requirements. Contact your bank for this information.
5. Do you have any recommendations for regional banks that are participating in these programs?
Most banks that I have spoken with consider it a huge distraction and are limiting loan availability to current customers. You are best to apply at your current bank. If your current bank has no interest this may be a good time to approach a local bank and offer to move your entire banking relationship as an accommodation for obtaining a PPP loan. Most readers of this article don’t need a mega bank. You will find that smaller regional, and local banks, have all of the resources that most business owners truly need.
6. If my wife owns an unrelated business and I’m on her LLC, only one of us could do the PPP loan?
This is not completely clear but it appears that owners with a 50% or greater stake must pick an entity. If you have a 50% or greater interest in both you may have to choose. It doesn’t hurt to inquire with your bank since the banks are the determiner of who is eligible for their loans. I would strongly suggest not applying loans for the two entities at two separate banks.
7. I believe the law regarding paying the employees if they are caring for COVID-19-related case or quarantined due to COVID-19 went into effect on April 1. So employees who were off before that date do not need to be paid?
This is a legal question, I am a tax advisor. From a tax prospective, if you are legally required to pay the employee due to special COVID-19 provisions you may seek reimbursement via tax credits. If you are not required to do so, you may have other avenues for reimbursement.
8. Are you accepting new clients and if so what do I need to do?
We are glad to discuss having any security, fire, or systems integration company as a client. We do not provide individualized advise to non-clients.
9. If we have a part-time person (works less than 20 hours a week) and she cannot come back to work, do we have to pay her for staying home and caring for her children (she cannot return because of kids home from school)?
This is a legal question, I am a tax advisor. From a tax prospective, if you are legally required to pay the employee due to special COVID-19 provisions you may seek reimbursement via tax credits. If you are not required to do so you may have other avenues for reimbursement.
10. If you get a PPP loan and have an employee leave will hiring a new employee cancel out or does it need to be the same employee rehired?
Yes, the new employee will qualify as long as your payroll costs on June 30, 2020, are 75% or greater than they were on February 15, 2020.
11. Are there forms we should be getting true subcontractors to provide to establish them as a subcontractor?
Payments to subcontractors (true subcontractors or not) are not eligible for loan forgiveness under the PPP loan program. The SBA expects them to obtain their own loans since they are not considered to be employees. I strongly advise against including payments to them as salary in either the loan application, or loan forgiveness process, as this would be a false statement on a government document, and would be contrary to your previous payroll tax filings with the IRS.
Now would be a good time to address whether they are truly contractors (and not misclassified employees) and seek forgiveness under the Voluntary Classification Settlement Program (VCSP). As these “contractors” begin seeking unemployment benefits and federal relief, the IRS Employee Misclassification Unit will be following up. These are not people that you want to establish a relationship with. We have assisted numerous companies in both confirming the status of their contractor relationships with the IRS, and obtaining relief under the VCSP.
12. Can’t subcontractors be classified as a sole proprietor and file for unemployment starting April 10?
That is a legal question and may even vary by state. Additionally, the states are overloaded. I expect some long-ranging repercussions from this, see my answer to the question above.
13. Do you have any idea of the length of time from application to funding?
The SBA and banks are overwhelmed. The SBA has already suspended its three-day guaranty for the emergency grants. Banks are backed up as much as six weeks. One of the banks that I am working with confirmed that the SBA is now issuing “loan numbers,” which means that funds have been allocated for forgiveness of specific loans. This has been a concern in that banks were waiting for this guidance before processing the loans. I expect to see some of the first PPP loans funding within one week.
14. On the “acceptable expense” aspect of the PPP loan, mortgage interest is mentioned. Is it just interest? We have less than a year left on our mortgage, so our payments are almost all principle, not interest.
Yes, the PPP program specifically prohibits use of the proceeds to pay down existing debt, so any amounts being allocated to principle would not be an allowed use and would also not be forgivable.
15. Regarding the previous question, does that apply to an employee being out quarantined due to having flu symptoms and were tested negative for COVID-19?
This is a legal question, but if the situation mandates sick pay under the CAR Act you will be eligible for the tax credits.
16. How about company match for 401K? Is that an expense included in calculation for PPP loan amount and/or forgiveness?
Company match of 401K contributions would be included in both calculations. Be careful though to include only the amount of contributions for two months of these expenses. Some companies make their annual contributions to some retirement plans during the spring of the following year, so don’t mistakenly use the annual amount. This is important not only for the calculation of the loan amount, but most importantly for the forgiveness amount.
17. Will my local independent bank have a list of exactly what is needed to apply for the “loan” and all the verification forms?
Most do. I spent last weekend with my bank developing an underwriting checklist. I would advise “over documenting.” If you send more information than necessary, for example, bank statements to show the actual payment of 2019 payroll taxes, it is much easier for the underwriters to determine that they don’t need it and simply shred it. If you don’t include information, and the underwriters decide that they do need it, your loan could be delayed while you produce it. Also, send any requested documents in separate PDF files so that the bank can easily forward each document to others.
18. We rent our buildings to ourselves and that is how we are paid from our company. Are we able to increase our guaranteed payment?
If you rent or lease your building from a related party, only the interest on a mortgage that was in place prior to February 15, 2020, is includable.
19. What about vehicle loan payments for company vehicles?
At this point the guidance is that only payments on a mortgage for real estate used in the business qualify. The interest portion of payments these notes may qualify, however be a qualified use of an EIDL.
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