March 20, 2020
By Brian Johnson, The Vogel Group
Below is a summary of the main business questions and impacts from Phase I and Phase II of the COVID-19 stimulus packages that are now law, as well as some information on the forthcoming Phase III. Some common questions and concerns appear in italics; answers follow.
Phase I – Signed into Law: A Q&A for Small Businesses
I’m worried my small business will have to close due to financial issues. Will there be more assistance?
Secretary Mnuchin has made clear immediate assistance is on the way. Moreover, H.R. 6047— the first Coronavirus bill— allowed $1 billion in loan subsidies to be made available to help small businesses, small agricultural cooperatives, small aquaculture producers, and nonprofit organizations which have been impacted by financial losses as a result of the coronavirus outbreak. This funding could enable the Small Business Administration to provide an estimated $7 billion in loans to these entities. In addition, provides $20 million to administer these loans.
Phase II – Signed into Law: A Q&A for Small Businesses
My small business can’t afford to pay sick leave. What happens?
H.R. 6201— the second Coronavirus bill, as passed by the House — includes a refundable payroll tax credit to reimburse—dollar-for-dollar—local businesses for paid sick leave and family and medical leave wages paid to employees that are affected by COVID-19. Click here for an explanation of who is eligible and for what amounts. Click here to see a chart of this bill.
The leave is fully funded by the tax credit, but my small business will be interrupted by cash flow issues.
H.R. 6201 provides significant relief to businesses that otherwise may not be able to afford the employee costs associated with coronavirus-related paid leave. Treasury has broad regulatory authority to advance funds to employers to protect businesses concerned about cash flow. In a March 14thpress release, Treasury stated that “employers will be able to use cash deposited with the IRS to pay sick leave wages. Additionally, for businesses that would not have sufficient taxes to draw from, Treasury will use its regulatory authority to make advances to small businesses to cover such costs.”
The legislation exempts businesses with more than 500 employees from mandated paid leave while imposing the requirement on small- and medium-sized job creators.
The benefits under H.R. 6201 are not an expense for the business, rather it operates as a benefit to both the worker and the employer. The legislation will ensure that every dollar of leave that an employer is required to pay is reimbursed—dollar-for-dollar—by the federal government. It will allow workers to care for themselves and loved ones impacted by coronavirus. Additionally, the credit will help businesses to stay up and running. After all, workers who knowingly show up sick jeopardize the health of coworkers and business operations.
Nearly 90% of businesses with more than 500 employees offer paid sick leave to their full-time workers. To facilitate more universal coverage of paid sick leave, H.R. 6201 provides temporary federal coverage for paid sick and family leave to all employers with fewer than 500 employees.
Does the bill mandate an unaffordable extension of FMLA on my small business?
H.R. 6201 as passed by the House permits the Secretary of Labor to exempt businesses with fewer than 50 employees from the longer-term mandate where it creates significant hardship.
How did the “technical fix” ensure that the tax credit will meet the liability of small business?
For every dollar that employers pay for coronavirus-related sick leave costs—both under Emergency Family Medical Leave and Emergency Paid Sick Leave—the bill provides a dollar in refundable tax credits.
The technical fix also empowers the Secretary of Treasury to ensure cash flow for small business:
The Secretary of Treasury now has authority to protect small businesses from cash flow problems by issuing guidance to provide those in need with advanced refunds of the tax credit.
And the Secretary of Labor is able to provide flexibility small businesses with fewer than 50 employees:
The Secretary of Labor now has authority make exceptions for small businesses with fewer than 50 employees to prevent emergency paid leave from causing hardship.
Mandatory Employer Paid Sick and Family and Medical Leave
How do employees find out if they can receive sick leave?
H.R. 6201— the second Coronavirus bill, as passed the House— requires employers to provide notice of eligibility to employees. The Department of Labor is required to create model notification within 7 days after enactment of the bill.
How does the H.R. 6201 support states that are experiencing a spike in claim for unemployment benefits due to COVID-19 layoffs and business closings?
The bill immediately provides $500 million in emergency administrative grants to increase state capacity to process unemployment applications and make payments. It also makes an additional $500 million available to states that experience a 10% percent increase in unemployment to provide 100% federally funded benefits to provide extra weeks of benefits.
CRS has released a 3-page explainer document that reviews the paid leave and unemployment insurance provisions here.
Find more information H.R.6201 – Families First Coronavirus Response Act:
- Bill Text
- Bill Text Explainer
- Key Facts in H.R. 6201
- Extending Tax Filing Season: Relief for Taxpayers & Small Businesses
Phase III – expected to pass within the upcoming week:
Draft provisions of Phase III include the small business loan packages and contain the following:
- Individual payments (aka checks) are $1200 per person with an additional $500 per child. Phase out begins at $75,000 individuals and $150,000 joint filers.
- Individual tax return filing is delayed to July 15, estimated payments delayed until Oct 15.
- Retirement withdrawal rules are relaxed for withdrawals under $100,000. Liability is spread over three years.
- Creation of a partial above-the-line deduction for charities, capped at $300 only available for standard deduction, non-itemized.
- Business estimated tax filing payments are delayed until Oct 15. Employer payroll tax deposits can be delayed until Jan 1, 2021.
- NOL carrybacks for up to five years.
- Interest deduction cap gets some help – goes from 30% of EBITDA to 50% of EBITDA.
- QIP technical fix included as well.
- Some changes to rules governing CFCs also.
About the Author:
A principal at The Vogel Group, Mr. Johnson provides clients with a comprehensive strategy to tackle Capitol Hill, the Administration and agencies. He is instrumental as a senior leader of the firm’s government affairs practice and averages over 500 Congressional meetings a year and countless pieces of legislation introduced on behalf of clients. As a policy expert he has testified before Congress and his expert commentary has been featured on BBC, CNN, C-SPAN, Fox News, Fox Business News, PBS, and many more. He can be reached at firstname.lastname@example.org.