Enter Phase 4 of the Stimulus Package

Apprehensions continue to grow as the economic impact of COVID-19 rattles across the world. We already have the CARES Act and the Paycheck Protection Program (PPP) loan, now the House is setting up the next circulation of legislation to help families and small businesses persevere. Although it is far from being approved and could be altered in the future, on May 12th, the House of Representatives proposed the HEROES Act. Below is a summary of what could be included for the small business community.

Paycheck Protection Program (PPP) Provisions:

  • The expenses paid with the PPP loan fund that is forgiven, would be deductible.
  • Businesses that are a recipient of the loan forgiveness under the PPP would be allowed payroll tax deferrals provided for under the CARES Act.

Tax Credits

  • Refundable payroll tax credit for paid sick and family leave would be extended to the end of 2021. Originally $10,000 in the Family First Coronavirus Response Act (FFCRA), the limitation on credits paid for family leave would be increased to $12,000.
  • Announces a payroll tax credit for qualified fixed costs defined in the PPP, to include rent, mortgage obligations, and utility payments. However, every quarter has limitations for qualifying expenses. Each quarter, qualified expenses are limited to 25% of wages, or 6.25% of gross receipts, with a maximum of $50,000.  Employer size and COVID-19 impact limitations apply to this credit.

NOL Provisions

  • Excess business losses for non-corporate taxpayers would be permanently suspended, previously only suspended for 2018 through 2020 by the CARES Act.
  • HEROES Act would limit carrybacks for net operating losses to tax years beginning on or after January 1, 2018 (amended 5-year NOL carryback for 2018-2020 allowed by CARES Act). Taxpayers with excessive executive compensation or excessive stock buybacks and dividends would be prohibited from carrying back losses.

The new HEROES Act is estimated at $3 trillion and calls for another wave of stimulus checks to be provided to the American people, except there will be an increase to $1,200 for dependents ($500 in the first stimulus package) with a maximum of $6000 per household. The impact of Phase 3 on the economy will determine the timing of these stimulus packages as the Senate wants to wait and see the effects.