Let’s Wrap this up, and one day hopefully all get back to work in a normal economy.

The economic programs and tax incentives the government has rolled out in response to the COVID-19 pandemic take the following forms:

1. Loans

2. Tax credits

3. Deferrals

There are two main loan programs, one through the SBA, the other, the PPP loan, is through commercial banks.  The latter is a special program created by the new legislation, and offers loan forgiveness to the extent businesses continue employing/paying people like normal.   This is a very good deal for business with a solid payroll and which can confidently maintain enough payroll in the two months following the loan to earn substantial loan forgiveness.   Borrowers for the SBA loan are encouraged to ask for the new $10,000 emergency three-day grant, which anecdotally the government has not been timely in honoring that three-day window. Self-employed and independent contractors do qualify for both programs; that status should not discourage anyone from applying.

Tax Credits, like the PPP loan, are meant to incentivize keeping payrolls up.  For employers who are mandated to pay sick leave or child care leave due to the virus, these wages are reimbursed by the government in the form of tax credits, which can be cashed in.  Certain businesses may qualify for a tax credit of 50% of wages paid in 2020, up to $5,000/employee.  This can also be a very good deal for an employer that can maintain its payroll in 2020, but the trick is the business has to also have seen a steep drop in sales 2020 vs 2019.  The last noteworthy bit about this credit is it cannot be combined with the PPP loan above.

Deferral is just a fancy word for postpone.  The reward structure here is the government is easing the burden on businesses by postponing them from having to pony up their share of payroll taxes to the end of 2020 and the end of 2021.  The taxes remain due but unpaid throughout until paid.  Employees, no such luck; withholdings will continue.    This also applies to self employed and independent contractors.  People who choose this option should beware however as the tax bill will eventually come due and if that hasn’t been provisioned for, things could get ugly.

There are a lot of ins and outs and details to these programs, as well as inconsistent practices going on in reality, so take all of the above with the grain of salt that things might work out differently in practice.  Ultimately these are a bunch of financial transactions subject to as much human error as any other product on earth, maybe more.

Consult an advisor to decide which incentive structure or liquidity lifeline would be best for your business to pursue, and then implement a strategy to go after those goals.