Updated Wednesday, May 6:
AHP continues to stay on top of small business administration programs, unemployment benefits, and disaster relief aid to help you stay financially afloat during the COVID-19 pandemic. Below is the best information we have as of May 5, 2020, to help you make decisions, but please know that this information can quickly change. We will continue to provide updates as we receive them.
Congress passed yet another expansion to the CARES Act and added funds to the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) and Loan Advance. In addition, many states are coming online with expanded unemployment benefits for the self-employed. There are three main federal financial options for you. In addition to these options, there may be financial assistance coming from your state in the form of other small business loans or assistance with utilities.
Here are the three main options through the CARES Act:
- Expanded Unemployment Benefits & Pandemic Unemployment Assistance
- Paycheck Protection Program (PPP)
- Economic Injury Disaster Loan and Loan Advance (EIDL)—only for agricultural businesses as of May 4, 2020
In addition, other local and state financial assistance may be available.
1. Expanded Unemployment Benefits
States are finally opening up Pandemic Unemployment Assistance (PUA). This provides unemployment to those who are self-employed. Here is what we know about the PUA process.
Individuals need to apply for regular unemployment first, and states look at W-2 income before self-employment income. So, unfortunately, if you are an employee in a second job in addition to being self-employed, your unemployment benefits will be based on your W-2 earnings as an employee. And if you are able to still work the second job, you will most likely not be able to apply for unemployment at all. If you don’t have employment income and your income is solely from self-employment, the system will push you over to the PUA program. PUA benefits are equal to half of the state’s average weekly unemployment benefits. For example, if you were eligible to receive $300 per week under regular unemployment, your PUA benefits would be $150 per week. That is the minimum; you might receive more. Documents you will need to apply for PUA will most likely be 1040-C forms, K-1 forms if you are an LLC or PC, and/or possibly accounting documents regarding payments you earned.
The CARES Act extended state unemployment an additional 13 weeks, so applicants are now eligible to receive 39 weeks of unemployment benefits. Once you are accepted, your benefits, in most states, will be backdated to the date you left work. In addition, the CARES Act added $600 per week to all individuals receiving assistance through unemployment or PUA from March 29, 2020, through July 31, 2020.
We have also been curious about whether one can receive unemployment if they choose not to return to work due to risk of contracting the virus. This link provides the following guidance:
“COVID-19/Coronavirus update: In March 2020, new federal law greatly expanded unemployment insurance. Many workers who were not previously covered are now eligible. You may now be eligible if any of the following are true:
- Your employer permanently or temporarily laid you off due to coronavirus measures
- Your employer reduced your work hours due to coronavirus measures
- You are self-employed and have lost income due to coronavirus measures
- You’re quarantined and can’t work due to coronavirus
- You’re unable to work due to a risk of exposure to coronavirus
- You can’t work because you’re caring for a family member due to coronavirus.”
We spoke with a well-respected employment lawyer who believes that unemployment benefits are not available if people are offered work and choose not to return to work due to a risk of exposure. Some states are interpreting “risk of exposure” as a valid reason for not returning to work to only apply to those who are deemed “vulnerable.” The definition of “vulnerable” may vary from state to state, but typically includes elderly people and those who are vulnerable as a result of underlying health conditions.
We encourage you to check your state’s unemployment page frequently to see when Pandemic Unemployment Assistance and/or self-employment are noted on the page. In most states, the unemployment application process will require you to apply for regular unemployment and then push you over to PUA if you are deemed ineligible for regular unemployment.
Unemployment benefit amounts vary from state to state, and not all individuals are eligible for the maximum amount of benefits. However, in addition to your state benefits, the federal government is issuing $600 per week from March 29, 2020, through July 31, 2020. Let’s say, for example, your state allows for $500 of unemployment benefits a week. The total financial aid you would receive in this scenario is $1,100 a week through the end of July. In addition, it appears that self-employed applicants will be entitled to “minimum benefits equal to ½ the state’s average weekly unemployment insurance amount.” Note that this is just the minimum—it can go up from there.
Benefits for the self-employed are available up until December 31, 2020; however, if we find ourselves in a similar state by the end of 2020, we suspect the ability to apply for these benefits may be extended.
To help you feel more secure in this unstable time, unemployment benefits will be extended an additional 13 weeks beyond what is routinely available in your state, which is typically 26 weeks, for a total of 39 weeks. After July 31, your unemployment benefits will go back to whatever your state is offering, as the $600 from the federal government will drop off.
Under regular unemployment rules, a participant must continue to look for work. Many states have modified or suspended the requirement to seek work while on unemployment. If a state has not yet modified and the old rules apply, once work is found, the unemployment benefits may stop, depending on how much you are making in your new job.
As with everything else immediate-post-CARES Act, what we are learning about unemployment for the self-employed changes multiple times a day. This New York Times article, “Here’s What the Relief Packages Give Self Employed Workers,” provides information on financial assistance across the board for self-employed individuals.
2. Paycheck Protection Program
The Paycheck Protection Program (PPP) is available for small businesses, the self-employed, and sole proprietors. This loan provides funds to keep employees paid for eight weeks. If 75% of the loan is used for payroll in the eight weeks after the loan is funded, then that amount is forgiven and does not need to be paid back. The remaining 25% can be used to pay business utilities and mortgages.
The loans were initially offered beginning Friday, April 10, 2020. As of Thursday, April 16, the program was out of funds and the Small Business Administration (SBA) stopped taking applications.
As of April 27, 2020, funding for the PPP program was restored and the program is ready to again accept applications. In fact, we are hearing that the amount of applications already waiting in the wings will probably deplete the fund again quickly. As we’ve said before, if you are interested in applying for the program, we encourage you to continue the process of compiling the appropriate documents and supporting background information, and identifying and working with a local bank so that your bank can be ready to submit if and when Congress and the President agree on additional funding for the program.
To apply, contact a bank with whom you already have a lending record. This should be a bank that you have more than a checking account with, and that is an approved Small Business Administration (SBA) lender. Here’s a helpful link to find a lender. In addition, PayPal, Square, and Intuit are also now approved lenders, and they may be easier to get a loan with than a major banking institution.
When you contact your lender, tell them you are interested in applying for a PPP loan with the SBA. These loans are going to be based on credit. If you do not have a lending relationship with a bank, you can seek one out, but you may be sent to the back of the line as a new customer. Banks will originate the loans and the SBA will guarantee the loans 100%. The SBA is partnering with the banks to get this money out to the public.
Required documentation includes 2019 payroll records or your most recent 12 months of payroll records. Identify a monthly average based on the last 12 months of the 2019 records. Special rules regarding self-employed individuals will hopefully soon be forthcoming; they likely will equate your average monthly income from professional services provided during the past year as a proxy language. One can multiply this average by 2.5 for the total amount of the loan related to payroll.
The PPP loan amount can also cover monthly rent/mortgage, health benefits, insurance, utilities for your business office, and other fixed existing debts that otherwise cannot be paid due to COVID-19. The term of the loan can be up to 10 years. Interest rates start at 1% for businesses and non-profits.
The maximum loan amount is 2.5 times the average monthly payroll, plus the other costs identified above, if one includes those. The loan covers the period between February 15, 2020, and June 30, 2020. A PPP loan is available through June 30, 2020, or until the funds run out, whichever comes first.
The benefit of a PPP loan is that eight weeks of expenses can be forgiven—that is to say you do not have to repay it—so long as at least 75% of expenses relate to payroll. If you subsequently fire or cut pay of any employees, the amount of loan forgiveness will be reduced. Accountants suggest that if you aim to have the loan forgiven, be prepared to provide an accounting showing that the funds were disbursed according to the program requirements. It is our understanding that the eight-week timeline begins the moment you receive the funds. This means you have eight weeks to spend the money and to keep employees on the payroll. This may not work with your return to work timing. If you apply and get the money, you can always decline the money if the timing doesn’t work for you, or you can keep the loan and pay all of it back within the next two years.
Here is the SBA webpage regarding this financial assistance option, posted as of April 27, 2020. It provides more information about the PPP and EIDL.
3. Economic Injury Disaster Loan
An Economic Injury Disaster Loan (EIDL) was also available from the SBA. As of May 4, the SBA is only accepting applications from agricultural businesses. If you submitted your application before May 4, you still may receive the loan. It is taking quite some time for the SBA to get through the applications.
EIDL loans are long-term, low-interest loans that must be paid back. In addition, you can apply for a $10,000 advance to help keep you on your feet that does not have to be paid back.
Individual EIDL loans are capped at $2M. The covered period is January 1, 2020, through December 31, 2020. All states have been declared a disaster due to COVID-19, although some counties may not have been included. EIDL loans are available for small businesses (500 or fewer employees) sole proprietors/self-employed individuals, C corporations, S corporations, LLCs, partnerships, and non-profit companies. The interest rate is 3.75% for businesses and 2.75% for non-profits. The term of the loan is up to 30 years. One can obtain up to a $10,000 advance on the loan by checking a box on the application. This advance does not have to be paid back if the loan isn’t approved. The purported time period for loan payout is three days for the advance and three weeks or more for the first loan disbursement. However, as the SBA is approving all of these applications, it is taking time to process them. If you have not been specifically denied for an EIDL loan, wait to hear from the SBA. It is possible they just haven’t yet reviewed your loan.
Business and personal assets will be required as collateral for owners with more than a 20% interest in the business; however, a loan will not be denied solely due to lack of collateral. No personal guarantees are needed for loans of less than $200,000. For loans greater than $200,000, 20% owners must issue guarantees.
EIDL funds may be used to pay for expenses that cannot be paid due to COVID-19, including existing debts, rent, mortgage interest payments, salaries, health benefits, insurance, payroll, sick leave and medical leave, and accounts payable.
If you already applied for an EIDL loan prior to May 4, 2020, and haven’t received a response from the SBA, it’s possible that they haven’t had a chance to review your application yet, and you may still be up for consideration. As of May 4, only agricultural businesses can apply for an EIDL loan.
As with everything else, things change almost daily, so keep checking back. Congress and the Senate are supposed to be back at work the week of May 4, 2020, so more funding and revisions to programs might be available soon.
Potential State and Local Loans and Financial Assistance
We encourage our members to also review your state economic development and small business departments or your local chamber of commerce to see if there are local loans or financial assistance available. We’ve heard that in some states there are lists of chambers of commerce loans that are available. In addition, some counties are offering assistance with utility bills or prohibiting evictions or mortgage defaults. Check with your county and state COVID-19 pages to stay on top of orders that will help with financial considerations.
The Synopsis of the SBA Programs and Loans and Unemployment
Each of these programs has plusses and minuses. You need to decide which one best meets your personal needs in your unique situation. We encourage you to carefully sort through which option might be most helpful to you and may provide the quickest relief.
Take, for example, the fact that one cannot apply for payroll relief through the PPP and receive unemployment benefits at the same time because one cannot be paid for work and paid for unemployment simultaneously. In addition, consider whether it benefits you to apply for two loans through the SBA (PPP and EIDL) at the same time, and how that could impact your credit. Another consideration is that the PPP forgiveness period of eight weeks starts ticking the moment the funds are disbursed. If you are unable to go back to work or open your doors, this might not be the program for you.
Additional assistance may come from your state economic development program with local loans from chambers of commerce or your state’s small business development programs for help with utilities. We encourage you to review both these programs on your state websites to see whether this local assistance is available to you.
Other benefits have come from the financial relief packages for self-employed workers.
Financial Aid Loan Payments
If you have a federal student loan (through the government, not a private agency like Sallie Mae), your student loan payments have been suspended through September 30.
If you have a loan with another company, it doesn’t hurt to contact them and ask if you can suspend your loan payments.
Paid Sick Leave and Paid Family Leave—Tax Credit
There is now a tax credit for the unemployed for sick leave and family leave. This credit needs to be claimed on your income tax return for 2020 (the one you file next year) and can be taken from April 1, 2020, through December 31, 2020. A tax credit can reduce the amount you owe in taxes or even push you over into a refund.
One can claim up to 10 sick days, and the credit applies if you’ve been ordered to stay at home by a governmental agency (state, city) or if a health-care provider suggests isolation.
To calculate your sick leave credit, per the New York Times article, determine your average daily income. “Take your net earnings (earnings after expenses) and divide that by 260. Then multiply the number of sick days by that figure or $511, whichever is less.”
There is also a smaller sick leave tax credit for those who left work to care for someone else—this credit covers 67% of percent of your average daily earnings (earnings after expenses divided by 260) for up to $200 per day. This credit is available for those who are caring for someone who is isolating or has been ordered into general isolation. This includes caring for children whose school has been closed.
Finally, there is caregiver leave for self-employed individuals if your child’s school or day care is closed due to the pandemic. Similar to the sick leave outlined above, this is 67% of your daily earnings for up to $200 per day, but it can be used for 50 days in 2020.
Reminder: all of these sick leaves and caregiver leaves can be used on your 2020 taxes (next year’s filing) from April 1, 2020–December 31, 2020.
Taxes for Self-Employed
Social Security and Medicaid Tax Payment
Most businesses with employees split the cost of payroll taxes (Social Security and Medicaid). Self-employed workers have to pay the full amount, as there is no one else to split with. New tax rules allow self-employed individuals to pay in two installments: one payment at the end of 2021 and the second at the end of 2022. The caveat is that if one obtains a PPP loan that is forgiven, one cannot defer tax payments.
In addition, typically those who are self-employed have to estimate quarterly income tax payments. The April 15, 2020, and June 15, 2020, deadlines have been pushed to July 15, 2020.
For those who would like to purchase health insurance, some states have reopened the enrollment window for the state health insurance exchange. Find out if your state has reopened enrollment windows here.
If you lost your health insurance as a result of this pandemic, you may be eligible to apply for Medicaid in your state. Thirty-eight states and DC expanded their Medicaid programs in the run up to the Affordable Care Act 10 years ago. Find out here if your state expanded Medicaid. This expanded Medicaid allows residents to qualify if their monthly income is roughly below $1,400 per month for a single person or $2,950 for a family of four. This calculation includes the unemployment benefits you may be receiving, but not the additional $600 from the federal government or the stimulus payment you may be receiving.
If you already have insurance through the state exchange and your enrollment window is open now, perhaps look at re-enrolling and see if you can get better subsidies if your income has fallen.
AHP is hopeful that we will all be able to return to work in some form sooner rather than later, even though it will most likely look a bit different than our work in the past. We hope the financial relief programs will help get you through these trying times until we can all rejoice in the reprieve. If you hear that your state is officially online with unemployment for the self-employed or that any of the stay-at-home orders are modified, please let us know. We appreciate your membership—stay safe and stay well.
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