Following a final vote in the U.S. House of Representatives, President Trump signed the Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, into law on Friday.
The law provides some relief to restaurants, hotels and other small businesses through a series of loans (which may be forgivable), tax credits and tax relief.
Here are some of the highlights:
— In general, small businesses with up to 500 workers in a single location can apply through qualifying banks for loans backed by the Small Business Administration. According to the Wall Street Journal, those loans can be converted into grants that don’t need to be repaid if the money is spent on items such as payroll, rent, mortgage interest or utilities. The grants would be reduced if workers are laid off.
— The loans are capped at the lesser of $10 million or two-and-a-half months’ payroll, calculated by taking the average monthly payroll during the 12 months leading up to the date of the loan. There are some exceptions for seasonal employers to calculate the average monthly payroll differently.
— No collateral or personal guarantee is required for the loans.
— Who’s eligible? According to the National Restaurant Association, only small businesses that employ fewer than 500 employees are eligible for the loans. But, the association noted, restaurants, foodservice, caterers and hotels that employ no more than 500 employees per physical location are also eligible as long as they operate under a NAICs code beginning with 72 (Accommodation and Food Services).
— An Employee Retention Tax Credit is aimed at employers who, due to a coronavirus-related shut down order, had to partially or fully suspend operations or saw gross receipts decline by more than 50 percent compared to the same quarter in the previous year. The legislation provides a refundable tax credit of 50 percent of wages paid to employees during the period of suspended operations.
— Employers can defer payment of their share of the Social Security tax they would otherwise be responsible for paying to the federal government with respect to their employees. Instead, the tax can be paid over the following two and a half years, with half the amount due to be paid by December 31, 2021 and the other half to be paid by December 31, 2022.
— Got net operating losses? The law allows for net operating losses, or NOLs, arising out of 2018, 2019 or 2020 to be carried back five years. In addition, the law temporarily removes the taxable income limitation to allow an NOL to fully offset income. (It’s probably a good idea to ask your accountant what all of this means.) In essence, the changes allow companies to utilize losses and amend prior year tax returns if that can help keep the business’ cash flow positive.
— If you have a business loan, there’s additional relief in the form of an increased tax deduction. The law temporarily increases the amount of interest expense businesses are allowed to deduct on their tax returns from 30 percent of taxable income (with adjustments) to 50 percent for 2019 and 2020.
— And lastly, businesses that made improvements to their property can now receive an immediate tax write off for the costs associated with those improvements instead of having to depreciate the costs over a 39-year time period. According to the Wall Street Journal, this provision corrects a drafting error in the 2017 Tax Cuts and Jobs Act that caused lots of retailers and hospitality business owners to overpay their taxes the last two years. Companies can amend prior year returns and they also have new incentive to invest in improvements while the country recovers from COVID-19.
Have questions or concerns about hospitality industry technology as it relates to COVID-19? Contact us today and we’ll be glad to help.