On Friday, March 26, 2020, the president signed the CARES Act, the largest stimulus legislation in U.S. history, into law. The act provides some relief for restaurant owners in forgivable paycheck protection loans and tax relief. The measures in the act are designed to incentivize keeping workers employed and businesses continuing to invest in business infrastructure and improvements.
Paycheck Protection Loans: Restaurants with fewer than 500 employees may borrow money through the Small Business Association (“SBA”) for a variety of costs related to employee compensation and benefits. This includes payroll costs, compensation for employees making less than $100,000 annually, rent, continuation of health care benefits, and rent.
The maximum loan amount is calculated by multiplying the average total monthly payroll costs of the business by 2.5, with a cap of $10 million. Loans will be provided at an interest rate of or under four percent. If the business spends the loan on payroll costs, rent, utilities, or interest payment on mortgages, that portion of the loan may be forgiven. However, loan forgiveness is contingent on businesses keeping their employees on payroll and maintaining salaries of at least 75 percent.
The enacted version of the bill permits franchise locations to seek loans, because any business in the Food Services sector with not more than 500 employees per physical location is eligible to receive a covered loan.
Emergency Economic Injury Disaster Loans (“EIDL” Loans): Restaurants may apply for EIDL Loans through the SBA and may request a $10,000 loan advance within three days of the application being received. To qualify, the restaurant must have been in operation on January 31, 2020 and have 500 employees or less. EIDL loan funds can be used to pay payroll expenses, paid sick leave related to COVID-19, meet increased supply chain costs, pay rent, and repay debts that cannot be otherwise paid due to revenue losses.
The CARES Act waives some of the requirements of other SBA loans, including the requirement of personal guarantees and the requirement that the applicant must be in business for a year.
A restaurant would be able to apply for both a payroll protection loan and an EIDL loan, as long as the loan funds are used for different purposes.
Employee Retention Tax Credit: Restaurants that have been fully or partially suspended due to COVID-19, or whose business declined 50 percent or more compared to the same quarter last year are eligible for a refundable payroll tax credit for 50 percent of wages paid to employees during the crisis. The credit applies to the first $10,000 of compensation paid, including health benefits, from March 13, 2020, through December 31, 2020. All wages paid by employers with 100 or fewer full-time employees qualify, with a more limited credit for employers with more than 100 full-time employees.
Qualified Improvement Property: Restaurants will be able to write off costs associated with improving facilities immediately instead of having to depreciate improvements over the 39-year life of the building. This provision corrects an error in the 2017 tax bill, which left out the 15-year depreciation on restaurant improvements.
Modifications for Net Operating Losses: The act modifies the IRS code to provide that an operating loss from 2018, 2019, or 2020 can be carried back five years. The act temporarily removes the taxable income limitation to allow a net operating loss to fully offset income.
Payroll Tax Delay: Employers may defer paying their share of applicable employment taxes due from March 26, 2020 to December 31, 2020. Half of this deferred amount is due on December 31, 2021 and the other half is due on December 31, 2022.
Tax Filing Delay: The tax filing deadline for both business and personal taxes is extended to July 15. Businesses can postpone estimated tax payments until October 15, 2020, with no cap on the amount of payment postponed.
Sick Leave Cap: Sick leave expenses for employers are capped at $200 per day and $10,000 in the aggregate for each employee. Employer expenses for paid family leave are capped at $200 a day or $2,000 in the aggregate for employees attending to a quarantined child or family member.
Expanded Unemployment Benefits: The act increases unemployment benefits for individuals and makes independent contractors and self-employed people eligible for benefits. The act gives individuals who have exhausted their state unemployment benefits an additional 13 weeks of federally funded unemployment benefits. It also provides an additional $600 in unemployment compensation to weekly unemployment benefits.
Direct Payments Based on Income: The act provides direct payment of a stimulus check of $1,200 to individuals making $75K annually, and families making $150K annually. Eligibility is based on the annual income reported in tax returns for the individual or family.