As federal and state governments begin to consider the business impacts of COVID-19, a number of tax credit and incentive programs are being established to assist small businesses. As of March 22, 2020, the federal government has established tax credits with the Families First Coronavirus Response Act, and has authorized the Small Business Administration (SBA) to disburse loans in every state to small businesses that have been impacted by COVID-19.
Federal programs
Families First Coronavirus Response Act
Enacted on March 18, 2020, the Families First Coronavirus Response Act provides employers with fewer than 500 employees certain tax credits against FICA based on the amounts of paid sick leave paid, as well as certain qualified health plan expenses the employer incurs with regard to the employees taking the mandatory paid leave. Self-employed individuals who are unable to work because of the COVID-19 emergency will also receive credits against section 1402 Self Employment Contributions Act (SECA) contributions. The amount of the credit varies depending on the nature of the employee and the reason behind the leave.
Employers can also receive a tax credit of up to $10,000 per-employee for paid child care leave for an employee who is unable to work because of the unavailability of the employee’s school or childcare facility due to the coronavirus.
SBA Loans
Small business owners in the following designated states are currently eligible to apply for low-interest SBA loans due to COVID-19. Loans to qualifying business are available in every state. The program provides small businesses with less than 500 employees with working capital loans of up to $2 million. The loans cannot be used to cover lost profits. Interest rates are 3.75% for small businesses and 2.75% for not-for-profits. Repayment length varies by company and can be as long as 30 years. Further guidance from the SBA is anticipated.
State programs
Currently, 15 states, and some cities, have enacted or created specific COVID-19 related programs, with the majority of these programs targeting small businesses. A large number of these programs are targeted loans to provide impacted small businesses with working capital. Additionally, many states have existing tax credit and incentive programs that may also bring relief to impacted small businesses. A number of existing state programs are available for small business to generate cash refunds from historical job creation, capital investment and technology development/deployment.
A selected number of state programs representative of the current incentives environment are summarized below.
California
COVID-19 programs
In addition to the SBA program, the California Infrastructure and Economic Development Bank (IBANK), a unit within the California Governor’s Office of Business and Economic Development, is offering two programs to support small businesses and low-wealth entrepreneurs economically impacted by COVID-19. The Disaster Relief Loan Guarantee Program (DRLGP) offers loan guarantees of up to $1 million for small businesses, ranging from one to 750 employees, in declared disaster areas. IBANK is also offering the Jump Start Loan Program which provides loans from $500 - $10,000 to low-wealth entrepreneurs in declared disaster areas.
Workforce development program
California provides qualifying companies with a cast grant of up to $15 per-hour for each hour that a California employee is training. This amount can increase to up to $26 per-hour for certain priority industries. Impacted businesses can use these funds to offset costs related to retraining employee to change business process, such as training for remote working, as well as training associated with retooling a workforce.
Florida
COVID-19 program
In addition to the SBA program, Florida small businesses may apply for short-term, interest-free loans through the Florida Small Business Emergency Bridge Loan Program. This program is utilized to bridge the gap between the time of economic impact related to COVID-19 and the time a business will expect to receive funding from the SBA program. Qualified small businesses with two to 100 employees, that can demonstrate economic injury as a result of the coronavirus, can apply for loans up to $50,000.
Existing program for all companies
Florida also has an existing jobs credit program for historical expansion. Companies that expanded and created jobs in certain designated urban and rural areas in the state may be able to obtain credits to offset either Florida corporate income tax or sales tax in the amount of up to $2,000 per qualified job. Applications for this program are accepted year-round and are based on 12-months of historical job creation activity.
Workforce development program
All Florida businesses that have been in operation in the state for a minimum of one-year are eligible for the Incumbent Worker Training Program (IWT). Eligible businesses will receive cash reimbursement of up to 50% of their direct training costs, while businesses meeting certain criteria such as being located in an economically distressed area may be eligible for reimbursement up to 75%. Funds may be used to reimburse training conducted on-site or off-site, and eligible training includes business-specific skills, technical or computer skills, soft-skills such as leadership, teamwork, and management, among others.
Illinois
Chicago: COVID-19 program
The city of Chicago is establishing the Chicago Small Business Resiliency Fund, which will provide a total of $100 million in emergency cash to businesses affected by COVID-19. Funding will be provided as low-interest loans and applications will open on March 31, 2020. Eligible small businesses are those with fewer than 50 employees, gross revenues of less than $3 million in 2019, and a 25%decrease in revenue due to COVID-19. These low-interest loans will be available for amounts up to $50,000 and terms up to five years. Loan proceeds must be used for working capital, with at least 50%applied toward payroll, along with a commitment to retain workforce levels at least 50% of those pre-COVID-19.
Illinois: Workforce development program
Illinois has a state-wide Incumbent Worker Training (IWT) program that assists employers with providing training to current employees for new or upgraded skills to help retain employment. Up to 100%of the costs of training can be offset as a cash reimbursement. While all Illinois businesses can apply, the state prioritizes awarding businesses with declining sales and supply chain issues, both of which the COVID-19 pandemic has made more prevalent.
Michigan
COVID-19 programs
In addition to the SBA program, the Michigan Economic Development Corporation (MEDC) gained approval from the Michigan Strategic Fund to offer economic assistance for small businesses negatively impacted by COVID-19. This assistance, totaling $20 million, will be provided under the Michigan Small Business Relief Program. The funding is divided between $10 million in small business grants and $10 million in small business loans, and is being offered to support small businesses facing cash-flow shortages as a result of the coronavirus. Funds for the program are expected to be available no later than April 1, 2020. MEDC will soon be providing additional details on how to apply to the program.
Workforce development program
The Michigan Workforce Development Agency (WDA) provides competitive awards to all businesses to assist in training and retaining employees. Eligible training must be classroom or customized training that leads to a credential for a skill that is transferable and recognized by industry. Eligible training for newly hired employees also includes on-the-job training. WDA awards up to $1,500 per employee trained.
New York
New York State: COVID-19 program
In addition to the SBA program, New York State is assessing options to mitigate hardships to state businesses.
New York State: Existing program for technology and life sciences companies
Companies may be able to obtain cash refunds for historical job creation and technology development/deployment. While not specifically targeted to COVID-19 issues, these programs may provide companies access to necessary cash flow.
New York City: COVID-19 program
New York City small businesses, with fewer than 100 employees, who have seen a sales decrease of 25% or more may be eligible for zero interest loans of up to $75,000 to help mitigate losses in profit. Additionally, small businesses with fewer than five employees may receive a grant to cover 40% of payroll costs for two months to help retain employees.
New York City: Existing programs
New York City also has an existing jobs credit program for historical expansion. Companies that expanded and created jobs in an outer borough of New York City may be able to obtain a cash refund of up to $3,000 per-person, per-year, for jobs that were created historically. Applications for this program must be filed by June 30, 2020.
New Jersey
COVID-19 program
In addition to the SBA program, the New Jersey Economic Development Authority (NJEDA) has a portfolio of loan, financing, and technical assistance programs available to support small and medium-sized businesses. This includes a Micro Business Loan Program that makes financing of up to $50,000 available to for-profit businesses legally registered to do business in New Jersey, with a business location in New Jersey (home-based businesses are not eligible), who have annual revenues in the most current fiscal year of no more than $1.5 million, and 10 full-time employees or less at time of application as well as direct loans of up to $2 million.
Existing program for technology and life sciences companies
New Jersey offers an existing program that allows small technology and life science companies with unused NOLs and R&D credits to exchange these for current year cash. The application window for this program for 2020 has not been established, but is expected to be sometime in June 2020. Qualifying companies must have fewer than 225 employees as well as meet other qualification criteria.
Workforce development program
The New Jersey Department of Labor and Workforce Development (NJDOL) provides training funds through the New Jersey Incumbent Worker Training grant program. This competitive grant program provides training reimbursement to assist employees in achieving measurable skills with training that would not otherwise have been conducted without grant assistance. Businesses may be awarded a maximum of $100,000 as a 50%cash reimbursement of the base wages of trainees participating in approved training.
Takeaways
Federal and state governments are rapidly mobilizing to assist businesses with the economic impact of the coronavirus pandemic. Governments will still be taking legislative action in the coming weeks to mitigate the full brunt of the economic impact for small businesses. We expect states to continue to establish new grant and loan programs to get cash in the hands of small businesses during this crisis. RSM is closely monitoring all legislative developments at both the federal and state levels, and we can assist your business in identifying and securing the funding necessary to help weather this unprecedented storm. Please consult with your state and local tax adviser for assistance
