Relief Is in Sight
CARES Act provisions aim to provide financial relief
As has been widely reported, on Friday, March 27, President Trump signed the $2.2 trillion CARES Act into law. The relief package contains key provisions, which may directly assist small broker-dealer firms in weathering this pandemic crisis.
ACI has learned from speaking to several of our broker dealer clients that firm executives are concerned about having sufficient cash flow to cover payroll and operating costs. While the provisions of the CARES Act are still being reviewed, we want to share with you some points that may assist you with retaining your employees and keeping your operations running as smoothly as possible. We are diligently working to confirm all the details of the provisions and how they will impact the regulatory community.
Significant CARES Act Provisions
These are among the primary CARES Act provisions you need to know about to take proactive measures for your firm:
1) If your operations are fully or partially suspended due to a COVID-19 related shut-down order, or gross receipts declined by more than 50%, when compared to the same quarter in the prior year, you may be eligible for a refundable payroll tax credit for 50% of qualified wages paid from March 13, 2020 through December 31, 2020.
The amount of qualified wages depends on the number of employees you have. Moreover, the credit is capped at the first $10,000 of compensation (including health benefits) paid to workers.
2) Employers and self-employed individuals can defer payment of the employer’s share (6.2%) of the Social Security payroll tax. The deferred amount must be repaid in equal installments by December 31, 2021 and December 31, 2022.
3) If you have fewer than 500 employees you may qualify for a Small Business Loan under the Paycheck Protection Program. The amount of the loan is limited to the lesser of $10 million or your average total monthly “payroll costs” for the 1-year period ending on the date the loan is made, multiplied by 2.5, plus any refinanced loan under the Economic Injury Disaster Loans (EIDL) program obtained after June 30, 2020.
The loan proceeds may be used for payroll costs (as defined), employee benefits and commissions, interest payments on mortgages, rent, utilities, and interest on debt incurred before February 15th.
You may apply for loan forgiveness in an amount equal to the cumulative amount of payroll costs, rent, utilities, and interest paid on mortgages during the 8 weeks after the loan is made. The amount forgiven is limited to the extent compensation and headcount are reduced relative to a base period, and any amount forgiven will not be taxable to the borrower.
Please note the Paycheck Protection Program is separate from the Economic Injury Disaster Loan program, which allows for emergency loans of as much as $2 million to assist companies affected by COVID-19.
Building on prior emergency aid
CARES Act provisions build on the disaster relief assistance provided under Internal Revenue Code Sec. 139, which was triggered on March 13 when President Trump issued an emergency declaration under the Robert T. Stafford Disaster Relief and Emergency Assistance Act. At that point, the president ordered the Internal Revenue Service to delay the tax deadline beyond April 15.
Under IRC Sec. 139, you may pay or reimburse reasonable expenses your employees incur for personal, family, living, and funeral expenses. These expenses may include:
- child care or tutoring due to school closings;
- work-from-home expenses including the cost of establishing a home office with related increased utility costs, higher costs for internet, printers, cell phone, and similar items;
- increased costs for unreimbursed health-related issues;
- increased transportation costs due to work relocation.
The payments are deductible for federal tax purposes, but you should check with your tax advisor to confirm your particular situation and whether state taxes may apply.
Assistance with small business loans
ACI has been closely reading through the CARES Act to assist clients with analyzing whether or not they would qualify for the small business loans. ACI Managing Partner, Jay Gettenberg, as a member of the FINRA Small Firm Advisory Committee (SFAC), has also been in direct communications with senior FINRA staff about obtaining regulatory net capital relief for FINRA member firms.
ACI will continue to provide updates on our Resources page as we manage together through this challenging time. We hope everyone is taking proactive and precautionary measures to remain safe.